Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: All right, let's get it right to our next guest,
Speaker 2: because this leads us in perfectly to liz Ane Sanders,
Speaker 2: chief investment Strategies at Charles Schwab. Liz, what did you
Speaker 2: take away from the Fed's action this week and particularly
Speaker 2: as it relates to maybe what they may do in
Speaker 2: twenty twenty six.
Speaker 1: Yeah, and good morning to you both. Happy holidays. Obviously,
Speaker 1: the cut was not a surprise. I don't tend to
Speaker 1: buck market expectations, especially when they are particularly dominant in
Speaker 1: one direction or another. We did expect what could be
Speaker 1: defined as a hawkish cut where they certainly didn't lay
Speaker 1: out any promises for the glide path going forward, and
Speaker 1: that's what happened. And just before I came on, you
Speaker 1: were talking about increasing dissents on the FED. I agree.
Speaker 1: I think that that is a good thing. I think
Speaker 1: it also helps to temper some of the concerns about
Speaker 1: independence of the FED and maybe something that either implicitly
Speaker 1: or explo powerless supporting that we can hear from lots
Speaker 1: of voices, and I think it's a reminder that the
Speaker 1: see in FOMC is committee not share so I think
Speaker 1: from the standpoint of that amount of uncertainty with regard
Speaker 1: to FED independence, I think the sense and a wider
Speaker 1: array of views is a positive. Yeah.
Speaker 3: And speaking of new voices, Lizen, we're going to get
Speaker 3: a new FED share. We know this in May. So
Speaker 3: how do you how are you thinking about the interest
Speaker 3: rate landscape in twenty twenty six? Are we going to
Speaker 3: get more? Do you think than that one cut that
Speaker 3: Powell was talking about this week?
Speaker 1: Tell me what the data is going to be, and
Speaker 1: I could give you a pribume an easier way to
Speaker 1: I mean, when you're a data dependent FED and then
Speaker 1: you had the effects of the government shutdown, which means
Speaker 1: we don't We haven't had any official labor market data
Speaker 1: since the September release. We don't have GDP data, we
Speaker 1: don't have National income and Product accounts, corporate profit margins data.
Speaker 1: So I think as we start to get the data,
Speaker 1: I do think that the FED, as it relates to
Speaker 1: their data dependency, they don't have a blind eye to
Speaker 1: inflation clearly, but I think the needle mover from a
Speaker 1: reaction function will continue to be on the labor market.
Speaker 1: So you could have a scenario where they cut more
Speaker 1: than the one or two that is priced into expectations.
Speaker 1: I'm not sure that that's universally a positive thing if
Speaker 1: it comes because of serious deterioration in a labor market.
Speaker 1: But I think the labor market is what's driving the
Speaker 1: bus right now.
Speaker 2: Le Zan. From an earning perspective, we had some really
Speaker 2: good earnings over the past several quarters here. The third
Speaker 2: quarter in particular, I think was really surprisingly on the
Speaker 2: positive side of these v street expectations. Is the current
Speaker 2: earnings environment enough to support this market here, do you think?
Speaker 1: Well? Actually, the trajectory of earnings among different cohorts I
Speaker 1: think is one of the reasons why we have started
Speaker 1: to see this broadening out. Over the last six months.
Speaker 1: Only seventeen percent of the S and p's constituents about
Speaker 1: perform the index itself over the past month. That's up
Speaker 1: to fifty four percent, and I think it's the differential
Speaker 1: in earnings growth profile. So if you look at any
Speaker 1: typical AI megacap cohort MAG seven or maybe a slightly
Speaker 1: broader AI basket, or even if you just hone in
Speaker 1: on the tech sector, over the last six to seven quarters,
Speaker 1: you've seen a pretty meaningful deceleration in the pace of
Speaker 1: earnings growth. Still strong, earnings growth, still better than the
Speaker 1: rest of the market called the other four hundred and
Speaker 1: ninety three. But we're starting to see convergence there because
Speaker 1: you have the rest of the market seeing an accelerating
Speaker 1: pace of earnings growth. And I'm always fond of saying
Speaker 1: better or worse matters more than good or bad, and
Speaker 1: it's that better in the case of the rest of
Speaker 1: the market. A little bit worse, though in an absolute sense,
Speaker 1: still strong. That has been a support for this broadening out,
Speaker 1: and I think that has legs in twenty twenty six.
Speaker 3: So Liza and we talk a lot about valuations and
Speaker 3: value being pretty frothy, But where is there the bargain
Speaker 3: buy for investors in equities in the new year.
Speaker 1: I don't know that there's any one monolithic place where
Speaker 1: you can find a bargain buy. I think that there
Speaker 1: is value to be found, and that has a lot
Speaker 1: to do with what's been happening under the surface. You know,
Speaker 1: there's so much focus on just what the indexer is doing.
Speaker 1: The cap weighted indexes SMP is up thirty eight percent
Speaker 1: from the early April closing low on April eighth, but
Speaker 1: the average member within the smp IS had a maximum
Speaker 1: draw down of nineteen percent just since April eighth. The
Speaker 1: NASA's up fifty five percent justince April eight, but the
Speaker 1: average member within the NASDAQ has had a forty percent
Speaker 1: maximum draw down. So with all this churn in rotation
Speaker 1: under the surface, that's where value is being found. I
Speaker 1: think this is an environment though, where you to bring
Speaker 1: back an old school acronym where you want to be
Speaker 1: mindful of value, but you don't want to sacrifice growth.
Speaker 1: It's very Garpye in terms of the factors. We think
Speaker 1: you want to focus on.
Speaker 2: Lizen From a factor perspective, is there anything that screens
Speaker 2: particularly well for you? These days?
Speaker 1: Growth oriented factors are doing very well, and I think
Speaker 1: that is particularly important when you go down the CAF spectrum.
Speaker 1: So if you look at the Russell two thousand and
Speaker 1: you break it out between its profitable and non profitable components,
Speaker 1: the nonprofitable components are outperforming the profitable components by more
Speaker 1: than double on a year to day basis. And it's
Speaker 1: even more extreme if you just go back to the
Speaker 1: April eighth closing low I would absolutely fade that lower
Speaker 1: quality unprofitable cohort within the Russell two thousand and lean
Speaker 1: into the profitability piece where you have better fundamentals and
Speaker 1: you have had the relative underperformance to the unprofitable. So
Speaker 1: again you want to look at value components, price to book,
Speaker 1: price to sales. You want strong balance sheet, high interest coverage.
Speaker 1: But you want those positive earnings trends, forward revisions, earnings
Speaker 1: expectations being exceeded during earning season. So it's a combination
Speaker 1: of both value and growth factors.
Speaker 2: Luziane, thanks so much for joining us. Lazanne Saunders, he's
Speaker 2: the chief investment strategist at Charles Schwap