WEBVTT - Day Two, Part Two at Schwab Impact in San Francisco 0:00:02.440 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:07.280 --> 0:00:11.160 This is Bloomberg Business Week with Carol Messer and Tim 0:00:11.200 --> 0:00:13.480 Stenovek on Bloomberg Radio. 0:00:13.880 --> 0:00:15.880 You are listening and watching Bloomberg BusinessWeek. 0:00:15.920 --> 0:00:17.680 We are on YouTube Bloomberg Originals and of course on 0:00:17.720 --> 0:00:20.680 Bloomberg Radio. We're live in San Francisco, Schwab Impact twenty 0:00:20.680 --> 0:00:24.200 twenty four, Carol mass or Tim Stenovik. We are surrounded 0:00:24.239 --> 0:00:26.599 by around I don't know, forty five hundred attendees, so 0:00:26.640 --> 0:00:29.480 a lot of folks registered investment advisors, all of the 0:00:29.520 --> 0:00:33.800 support network that works with them, So a lot of 0:00:33.800 --> 0:00:36.920 conversations about the market environment, the services needed, what's going 0:00:36.920 --> 0:00:39.239 on with money management. And I got to say this 0:00:39.320 --> 0:00:40.600 hour is kind of a special one. 0:00:40.680 --> 0:00:40.960 It is. 0:00:41.320 --> 0:00:43.680 Hey, I'm gonna just do some breaking new You have 0:00:43.680 --> 0:00:46.080 a headline because I have some breaking news here a 0:00:46.120 --> 0:00:48.320 redhead coming from our own Mark Germ and Apple is 0:00:48.400 --> 0:00:51.000 racing to develop a more conversational version of its Serrie 0:00:51.080 --> 0:00:53.960 digital assistant, aiming to catch up with Open Eyes, Chat, 0:00:53.960 --> 0:00:57.920 GPT and other voice services. According to people with knowledge 0:00:57.920 --> 0:01:00.240 of the matter, Apple aiming to launch a Siri up 0:01:00.280 --> 0:01:02.800 in twenty twenty six, with more in house AI. 0:01:02.600 --> 0:01:04.560 I'm a little sensitive having just done a big panel 0:01:04.600 --> 0:01:07.120 here with some great panelists up on stage in one 0:01:07.160 --> 0:01:08.080 of the keynotes, and it was. 0:01:08.040 --> 0:01:10.520 All about AI. But I do feel like that is. 0:01:10.440 --> 0:01:12.760 Such continues to be a big part of the conversation 0:01:12.880 --> 0:01:15.920 even here at Schwab twenty twenty four. All right, so 0:01:16.000 --> 0:01:17.919 let's get to it, because we want to start kicking 0:01:17.959 --> 0:01:22.240 off this whole hour talking global equities, US equities, fixed income. 0:01:22.319 --> 0:01:24.080 We want to start with US equities. We've got it 0:01:24.080 --> 0:01:26.760 for a terrific duo to do that. Lyz Anne Saunders, 0:01:26.840 --> 0:01:30.640 Managing Director, chief Investment Strategist at Charles Schwab Here at 0:01:30.959 --> 0:01:34.400 Schwab Impact along with Kevin Gordon, Director Senior Investment Strategies 0:01:34.560 --> 0:01:37.440 at Charles Schwab. Guys, welcome, Welcome, Thank you, or I 0:01:37.440 --> 0:01:39.080 should say thank you for having us. 0:01:39.200 --> 0:01:41.280 US welcome impack again, thanks for coming. 0:01:41.360 --> 0:01:43.680 I want to ask you kind of conversations you guys 0:01:43.680 --> 0:01:46.360 are having about the markets between yourselves about what's going on. 0:01:48.080 --> 0:01:48.680 Is there a debate? 0:01:48.840 --> 0:01:51.280 Well, no, it's just such a unique period of uncertainty 0:01:51.320 --> 0:01:56.240 because of the different directions policy can go. And one 0:01:56.240 --> 0:01:58.800 way we've been talking about it is we're all always 0:01:58.880 --> 0:02:01.480 mindful of of sort of tail risks. I think the 0:02:01.600 --> 0:02:06.400 tails are fatter because of not just the uncertainty associated 0:02:06.440 --> 0:02:10.280 with tariffs, immigration policy, but the fact that much of 0:02:10.320 --> 0:02:13.119 what appears to be the priority of the administration could 0:02:13.120 --> 0:02:15.000 be done by executive order and doesn't have to go 0:02:15.040 --> 0:02:18.400 through that congressional And we learned in twenty eighteen that, 0:02:18.680 --> 0:02:20.560 you know a lot of the terriff announcements were done 0:02:20.960 --> 0:02:24.280 by Twitter, so it's unconventional. 0:02:24.480 --> 0:02:25.880 Might be truth social this time. 0:02:26.000 --> 0:02:28.560 Maybe maybe I don't know, he's pretty click tight with Elon, 0:02:29.080 --> 0:02:30.120 it might be Twitter. 0:02:32.240 --> 0:02:35.120 So then how do you think about what can you 0:02:35.200 --> 0:02:36.800 kind of hang your hat on, Kevin, come on in 0:02:36.840 --> 0:02:37.440 on the conversation. 0:02:37.480 --> 0:02:38.919 Well, I think you know, one of the hard parts 0:02:39.040 --> 0:02:42.360 about going back to twenty eighteen twenty nineteen is, you know, 0:02:42.720 --> 0:02:45.000 as humans, with's natural to go back to a period 0:02:45.000 --> 0:02:46.600 of time and say, yeah, you can bring out that 0:02:46.639 --> 0:02:48.200 playbook dusted off, especially from. 0:02:48.040 --> 0:02:48.960 A tariff perspective. 0:02:49.080 --> 0:02:51.000 What's harder this time is that we're in a totally 0:02:51.040 --> 0:02:55.640 different macroeconomic environment where you're still dealing with ripple effects 0:02:55.639 --> 0:02:58.360 from the pandemic, You're still dealing with a bond market 0:02:58.360 --> 0:03:00.240 that is a little bit more unruly this time than 0:03:00.280 --> 0:03:02.880 it was going into the first administration for Trump. So 0:03:03.240 --> 0:03:04.920 I think that, you know, to Lazand's point about what 0:03:04.960 --> 0:03:07.840 can be done unilaterally versus what can be done with 0:03:07.960 --> 0:03:10.640 congressional approval, really needs to be looked at here, especially 0:03:10.639 --> 0:03:14.160 from an immigration policy perspective, because most of the labor 0:03:14.160 --> 0:03:16.079 force growth we've had over the past four years has 0:03:16.120 --> 0:03:19.160 been from the foreign born, you know, workforce, so that 0:03:19.240 --> 0:03:22.120 if it gets restricted, I think could be more of 0:03:22.160 --> 0:03:23.000 a more of a problem. 0:03:23.040 --> 0:03:23.800 Tell little that the. 0:03:23.840 --> 0:03:26.639 FED comes into the mix, because the combination of immigration 0:03:26.720 --> 0:03:29.600 policies and tariff policies, it's hard to argue against them 0:03:29.639 --> 0:03:34.640 being inflationary. So then you have what's the FED reaction function? 0:03:35.200 --> 0:03:36.880 If it's policy driven inflation. 0:03:37.320 --> 0:03:40.960 I I based on the first Trump administration, I believe, 0:03:42.240 --> 0:03:45.000 and I'm not getting political here, I'm just stating sort 0:03:45.040 --> 0:03:48.680 of a theory. The President elect loves to look at 0:03:48.680 --> 0:03:50.240 the S and P. Five hundred and talk about the 0:03:50.280 --> 0:03:51.920 S and P five hundred. That's like his report card 0:03:52.240 --> 0:03:55.360 for how he's doing. If there is an adverse market 0:03:55.400 --> 0:03:59.040 reaction to one of his policies, I think that would 0:03:59.080 --> 0:04:00.640 be enough for him changes too. 0:04:00.880 --> 0:04:03.200 I think not just the S and P five hundred. 0:04:03.280 --> 0:04:06.960 I think markets could be the decider, not just the 0:04:07.000 --> 0:04:09.320 equity side of things, but the bond markets. 0:04:09.000 --> 0:04:09.920 The bond vigilances. 0:04:10.120 --> 0:04:10.840 Yeah. 0:04:10.920 --> 0:04:13.040 I think the other thing to keep in mind is 0:04:13.600 --> 0:04:15.640 it's not as if because you know, we know that 0:04:15.720 --> 0:04:18.320 President elect Trump is very focused on markets, that doesn't 0:04:18.320 --> 0:04:20.880 mean that you don't get downturns and you don't get volatility. 0:04:20.880 --> 0:04:22.960 I mean, if you just use twenty seventeen as a 0:04:23.000 --> 0:04:24.840 case study, if I came from the future and we 0:04:24.839 --> 0:04:26.520 were in twenty seventeen and told you we were going 0:04:26.560 --> 0:04:29.039 to get this massive fiscal stimulus in the form of 0:04:29.040 --> 0:04:31.479 tax cuts at the corporate and the individual level, you'd 0:04:31.520 --> 0:04:34.320 probably think that's nirvana for risk assets. But the reality is, 0:04:34.360 --> 0:04:36.320 we had the shortfall implosion in twenty eighteen. You had 0:04:36.320 --> 0:04:38.440 a near bear market almost by a tenth of a 0:04:38.440 --> 0:04:40.520 percentage point for the SMP in the fourth quarter of 0:04:40.520 --> 0:04:43.159 that year, and yeah, you bounced back in twenty nineteen, 0:04:43.240 --> 0:04:45.599 was choppy but ended up being okay. But it doesn't 0:04:45.640 --> 0:04:48.599 mean that you eliminate all of this downside risk, especially 0:04:48.600 --> 0:04:51.440 if it's driven more by teriff related news and you know, 0:04:51.480 --> 0:04:53.320 the hits to manufacturing in the US that are as. 0:04:53.320 --> 0:04:54.880 Sociating up the hits to manufacturing. 0:04:54.880 --> 0:04:57.960 If you look at the ISM Manufacturing index and put 0:04:58.000 --> 0:04:59.960 a vertical line at the start of the trade war 0:05:00.160 --> 0:05:03.960 in twenty eighteen, it went straight down. Now we're at 0:05:04.279 --> 0:05:07.080 lows in manufacturing. So I don't know that we have 0:05:07.160 --> 0:05:10.880 a potential implosion from these lows, but it could be 0:05:11.200 --> 0:05:15.000 something that prevents what was the hope for pickback up 0:05:15.000 --> 0:05:15.840 and manufacturing. 0:05:15.880 --> 0:05:17.960 I guess I keep thinking about you know, there's the 0:05:18.040 --> 0:05:21.760 fundamental stories of companies and profits, right that really matters. 0:05:21.760 --> 0:05:23.400 But then you've got a layer on top of that 0:05:23.640 --> 0:05:25.880 the politics that's going to play out, and that's going 0:05:25.920 --> 0:05:27.320 to kind of kick investors around. 0:05:27.320 --> 0:05:29.800 I mean, how are you guys squaring when. 0:05:29.680 --> 0:05:33.040 You're going to have a client call up and say, listen, fundamentally, 0:05:33.360 --> 0:05:35.080 earnings growth is happening, but you know. 0:05:35.040 --> 0:05:39.560 He keep it if you're proxying or earning's growth at 0:05:39.600 --> 0:05:42.240 the S and P level, that's obviously biased up the 0:05:42.279 --> 0:05:45.200 cap spectrum. You've got forty three percent of the Wrestle 0:05:45.279 --> 0:05:48.560 two thousand or nonprofitable companies, You've got a similar share 0:05:48.600 --> 0:05:49.760 that zombie companies. 0:05:50.160 --> 0:05:52.080 So I think there's a there's a much. 0:05:52.000 --> 0:05:56.000 Wider spread, especially when looking on the cap spectrum. 0:05:56.279 --> 0:05:57.479 Okay, but it. 0:05:57.839 --> 0:05:59.960 Often gets masked by virtue. 0:06:00.080 --> 0:06:03.800 There's so much focus on the large cap indexes. 0:06:03.839 --> 0:06:05.480 Well, funny that you say that, because I feel like 0:06:05.520 --> 0:06:07.479 the last two weeks everybody keeps coming on and said, 0:06:07.480 --> 0:06:09.760 guess what, it's small caps turn again? 0:06:10.320 --> 0:06:13.840 So is it not monolithically Okay, again, when you look 0:06:13.839 --> 0:06:16.160 at an index as large as a Russell two thousand 0:06:16.320 --> 0:06:19.840 to sort of just blanketly say yeah, small caps look good, 0:06:19.880 --> 0:06:23.120 I think that there is there are interesting zombie companies 0:06:23.320 --> 0:06:25.159 that you said, Yeah, those are not those with not 0:06:25.160 --> 0:06:27.479 sufficient cash flows to pay even interest on their debts. 0:06:27.520 --> 0:06:31.159 So I think you know, our our thesis around factors 0:06:31.200 --> 0:06:34.599 has been, yeah, there's opportunities down the cap spectrum, but 0:06:34.640 --> 0:06:36.080 you don't want to sacrifice quality. 0:06:36.200 --> 0:06:36.479 Yeah. 0:06:36.520 --> 0:06:38.720 And to that point about quality, I mean, if you 0:06:38.920 --> 0:06:42.560 just used positive earnings on a trailing twelve month basis, 0:06:42.560 --> 0:06:45.719 so earnings of EPs above zero as your your you know, 0:06:45.880 --> 0:06:48.760 only criterion for the Russell two thousand, and you took 0:06:48.800 --> 0:06:51.000 all of those companies, you know, it's about eight hundred 0:06:51.080 --> 0:06:54.560 nine hundred change as a group. On average, they're up 0:06:54.600 --> 0:06:56.839 by almost forty five percent over the past years. So 0:06:56.880 --> 0:06:59.599 there are pockets of small caps that have worked. It's 0:06:59.640 --> 0:07:02.239 just not equally distributed because of the interest rate environment 0:07:02.279 --> 0:07:03.120 we've been in, also. 0:07:02.960 --> 0:07:03.680 The growth environment. 0:07:03.720 --> 0:07:05.880 And by the way, all of these pops that you've 0:07:05.880 --> 0:07:07.560 had in the wrest of two thousand from time to 0:07:07.560 --> 0:07:09.400 time over the past couple of years, every time they 0:07:09.440 --> 0:07:11.320 get a little bit of momentum and everyone thinks it's 0:07:11.400 --> 0:07:13.960 changing for them, it hasn't been consistent with the turned 0:07:14.000 --> 0:07:16.760 in forward earnings growth and expectations. So until I think 0:07:16.800 --> 0:07:19.960 you see that actual move where conviction starts to build. 0:07:19.960 --> 0:07:22.680 From an earning standpoint, it's tough to get bullish on 0:07:22.760 --> 0:07:25.200 the index as a whole. But to Lezan's point about 0:07:25.240 --> 0:07:27.080 you know a large chunk of it being now profitable 0:07:27.080 --> 0:07:29.680 and zombie like, it's just tough at more. 0:07:29.560 --> 0:07:30.400 Than the Nasdaq. 0:07:30.440 --> 0:07:32.200 If you look at the top ten best performers this 0:07:32.280 --> 0:07:34.640 year in the Nasdaq, none of them are large cap stocks. 0:07:34.760 --> 0:07:37.160 They're all small yeah to me a none of them 0:07:37.160 --> 0:07:40.880 are in the MAGS seven. So I think we get 0:07:40.920 --> 0:07:43.840 in this sort of tunnel of the megacap tech and 0:07:43.920 --> 0:07:48.960 tech related names, and there's less analysis happening on everything else. 0:07:48.880 --> 0:07:50.880 On an index level is an Are you concerned about 0:07:50.880 --> 0:07:53.600 the power of those mega cap tech companies? It's a 0:07:53.680 --> 0:07:55.200 question I could have asked five years ago, it just 0:07:55.240 --> 0:07:56.480 wouldn't have included in Vidia. 0:07:56.880 --> 0:08:00.520 But I think the problem of concentration in the perceived 0:08:00.840 --> 0:08:03.480 need to be in those names in order to do well, 0:08:03.720 --> 0:08:06.960 that's an institutional problem, that's not an individual investor problem. 0:08:06.960 --> 0:08:10.160 If you're benchmarked against a cap weighted index, you are 0:08:10.840 --> 0:08:14.440 at the mercy of what those largest names their contribution 0:08:15.320 --> 0:08:19.120 to the index. But for individual investors, they're not benchmarked 0:08:19.120 --> 0:08:20.960 against the S and P five they don't have to 0:08:21.000 --> 0:08:24.160 take that same kind of concentration risk. And it's another 0:08:24.200 --> 0:08:27.040 point behind that. What I just mentioned of top ten 0:08:27.080 --> 0:08:30.240 best performers in the Nasdaq, they're all small to mid 0:08:30.240 --> 0:08:32.920 cap stocks. Only one of the MAGS seven is in 0:08:32.960 --> 0:08:34.680 the top ten best performers of the S and P 0:08:34.800 --> 0:08:38.800 five hundred. So I think you don't need to have 0:08:38.840 --> 0:08:43.920 that concentration risk if you're not professionally benchmarked against. 0:08:43.679 --> 0:08:44.120 The S and P. 0:08:44.360 --> 0:08:45.920 What do you think are the biggest risks right now? 0:08:45.960 --> 0:08:47.760 Do we have clarity on it for twenty twenty five. 0:08:48.040 --> 0:08:50.120 I mean, from a policy standpoint, that's probably the easy 0:08:50.160 --> 0:08:51.559 one to throw out there. But I think just the 0:08:51.840 --> 0:08:52.800 lack of clarity. 0:08:52.679 --> 0:08:55.679 Policy meaning government will also sand policy. 0:08:55.280 --> 0:08:57.679 More Washington policy, but I think they're tied together now. Yeah, 0:08:57.679 --> 0:08:59.920 because I could see a scenario where if you do 0:09:00.080 --> 0:09:03.000 get more restrictive labor force growth coming from the outside, 0:09:03.000 --> 0:09:04.720 but also if there is a chunk of the labor 0:09:04.760 --> 0:09:09.920 force physically removed from the country, that's probably an inflationary problem. 0:09:09.960 --> 0:09:11.600 And I've also yet to I love. 0:09:11.400 --> 0:09:13.040 That you guys are going there because I don't think 0:09:13.040 --> 0:09:15.040 people realize. We certainly hear it from CEOs that they 0:09:15.040 --> 0:09:17.160 are so worried that they're not going to have access 0:09:17.200 --> 0:09:19.559 to a labor force and what that means their ability 0:09:19.600 --> 0:09:20.120 to do things. 0:09:20.200 --> 0:09:21.560 And it's an increase in. 0:09:23.640 --> 0:09:27.520 The cost of labor costs, right, and it's a decrease 0:09:27.520 --> 0:09:28.360 in labor supply. 0:09:28.679 --> 0:09:30.199 There's the demand side of that as well. 0:09:30.360 --> 0:09:31.760 I can shuck in a demansion. 0:09:31.800 --> 0:09:34.560 I can't get a CEO to seriously explain that that 0:09:34.640 --> 0:09:37.400 will affect them at this point in the last two weeks, 0:09:37.920 --> 0:09:40.600 even if they don't employ people who didn't come to 0:09:40.640 --> 0:09:41.920 this country illegally. Right. 0:09:42.160 --> 0:09:46.720 How how often do you talk to smaller company CEOs. 0:09:46.520 --> 0:09:47.960 I recently, did you actually talk to me? 0:09:48.600 --> 0:09:52.320 I talked to you in the spaces where migrant work 0:09:52.440 --> 0:09:53.520 is a large. 0:09:53.320 --> 0:09:57.520 Construction in hospitality, construction, restaurants. 0:09:57.559 --> 0:10:00.640 Almost twenty percent of the construction sector is undocumented. 0:10:00.720 --> 0:10:03.240 I have two brothers who are contractors. They're like, they 0:10:03.240 --> 0:10:03.760 can't find work. 0:10:03.960 --> 0:10:05.719 But I think the important point is that it's not 0:10:05.920 --> 0:10:09.079 just you could not You could run a company that 0:10:09.120 --> 0:10:11.720 doesn't employ any undocumented workers, You're still going to see 0:10:11.760 --> 0:10:14.800 labor costs rise if eleven million people are taken out 0:10:14.840 --> 0:10:16.760 of this country who are doing work. 0:10:16.559 --> 0:10:17.000 That's right. 0:10:17.080 --> 0:10:19.560 Yeah, it's a demand shock, it's a supply shock, and 0:10:19.600 --> 0:10:21.560 I think we sort of lose sight of the fact 0:10:21.600 --> 0:10:25.280 on the demand side, especially because the supply side is 0:10:25.280 --> 0:10:27.480 looked at maybe sometimes more of an issue in terms 0:10:27.480 --> 0:10:29.679 of the makeup of a particular industry or the makeup 0:10:29.679 --> 0:10:32.640 of the labor force. But if you're taking demand out 0:10:32.679 --> 0:10:34.920 of the country, but you're also not being able to 0:10:35.000 --> 0:10:37.920 fill the supply hole that you're leaving, that's sort of 0:10:37.920 --> 0:10:39.120 a stagflationary shock. 0:10:39.320 --> 0:10:42.000 So what does it do to the market if that 0:10:42.000 --> 0:10:43.839 policy ends up coming to fruition. 0:10:43.679 --> 0:10:45.720 Well, I mean, I think it's it depends if it's 0:10:45.720 --> 0:10:46.480 phased over time. 0:10:46.880 --> 0:10:51.840 Yeah, and you know, we don't know the logistics around 0:10:51.840 --> 0:10:54.600 whether we even possibly could get to the high end 0:10:54.920 --> 0:10:57.520 of what the campaign pledges. 0:10:57.200 --> 0:10:59.800 The reality of that, right, But Peterson. 0:10:59.440 --> 0:11:01.440 Institute on if you guys saw it, just did a 0:11:01.480 --> 0:11:05.640 study on okay, let's take it to the extreme, both 0:11:05.720 --> 0:11:08.000 on the immigration side of things, on the tariff side 0:11:08.000 --> 0:11:11.280 of things, and they actually added an interesting little wrinkle 0:11:11.320 --> 0:11:13.840 into the mix. If there continues to be a threatening 0:11:13.840 --> 0:11:18.559 of FED independence, all three of those collectively are unquestionably 0:11:19.040 --> 0:11:20.800 higher inflation, lower growth. 0:11:20.920 --> 0:11:21.720 Kind of backdrop. 0:11:21.800 --> 0:11:24.680 Now we you know, the real answer maybe somewhere in 0:11:24.679 --> 0:11:27.880 the middle of nothing gets done and the extremes both 0:11:27.920 --> 0:11:29.560 on immigration and teriffs. 0:11:29.679 --> 0:11:30.600 But it's a wait and see. 0:11:30.400 --> 0:11:30.720 Mode, right. 0:11:30.760 --> 0:11:31.040 Yeah. 0:11:31.120 --> 0:11:33.040 Even on the tariff front, I've yet to see a model, 0:11:33.120 --> 0:11:35.000 and all the research that we read, I've yet to 0:11:35.040 --> 0:11:38.120 see them out of that doesn't suggest it's a stagflationary 0:11:38.160 --> 0:11:40.200 shock where over time you get this boost to inflation, 0:11:40.280 --> 0:11:41.880 but you also get a hit to growth. 0:11:42.320 --> 0:11:44.240 I want to go back to the market as kind 0:11:44.240 --> 0:11:46.720 of a clearing house for all of the information, because 0:11:46.720 --> 0:11:49.680 they do feel like the market smacks down policies or 0:11:49.679 --> 0:11:52.760 initiatives very quickly. I feel like much more than it did. 0:11:52.800 --> 0:11:54.520 I don't know ten years ago. Maybe it's because of 0:11:54.559 --> 0:11:57.319 social media and stuff just piling through. Do you assume 0:11:57.320 --> 0:12:01.360 that will continue and that will send messages to Washington 0:12:01.880 --> 0:12:04.800 and maybe so that things aren't so severe. 0:12:04.720 --> 0:12:07.840 It will send messages. How much they're heated, that we 0:12:07.880 --> 0:12:08.520 don't know. 0:12:08.440 --> 0:12:10.400 But especially when I think about the FED and the 0:12:10.400 --> 0:12:12.280 independence of the FED, like that to me would be 0:12:12.280 --> 0:12:13.720 something that would bring well to me. 0:12:13.800 --> 0:12:16.640 The most fascinating part of Palace press conference at the 0:12:16.640 --> 0:12:22.080 most recent FOMAC meeting was the definitive no. As soon 0:12:22.080 --> 0:12:24.360 as that happened, I thought, that's the headline, and that 0:12:24.400 --> 0:12:27.680 should be the headline. So I don't worry about that 0:12:27.840 --> 0:12:31.160 piece of it all that much. But all of this 0:12:32.280 --> 0:12:35.440 gets to what we are One of our thesis is 0:12:35.480 --> 0:12:39.600 that this sector dispersion, these rapid fire rotations that are 0:12:39.600 --> 0:12:43.200 happening at the sector level, are going to persist. The 0:12:43.320 --> 0:12:47.320 drivers going forward may be more specific to things like 0:12:47.720 --> 0:12:51.200 tariff policy announcements, and we saw that in twenty eighteen 0:12:51.360 --> 0:12:54.000 there was you know that that voting mechanism that happened 0:12:54.000 --> 0:12:58.920 so quickly with markets maybe doesn't appear acutely at the 0:12:58.960 --> 0:13:01.320 broad index level, but I think you're going to see 0:13:01.320 --> 0:13:04.520 it at the industry level, at the sector level, tied 0:13:04.640 --> 0:13:07.440 specifically to both tariffs and immigration sense. 0:13:07.679 --> 0:13:10.559 Hey, we're speaking with Lizene Saunders, Managing Director, chief investment 0:13:10.600 --> 0:13:13.400 strategist at Charles Schwab on site at Schwap Impact, along 0:13:13.440 --> 0:13:16.920 with Kevin Gordon, Director, Senior investment Strategist at Charles Schwap. Kevin, 0:13:16.920 --> 0:13:18.800 I believe a year ago we were sitting here it 0:13:18.840 --> 0:13:21.720 was October of last year at Philadelphia s and P 0:13:21.760 --> 0:13:25.439 five hundred is up forty percent since our conversation with 0:13:25.760 --> 0:13:27.080 a What a thunk? 0:13:27.160 --> 0:13:28.120 And what was interesting too? 0:13:28.120 --> 0:13:30.079 I remember talking to you guys about the unique nature 0:13:30.120 --> 0:13:32.079 of this bull market, and at that point it had 0:13:32.120 --> 0:13:34.800 been so unique where even for something like small caps 0:13:34.800 --> 0:13:36.880 in the rustle of two thousand, it was breaking new 0:13:36.960 --> 0:13:40.040 bear market lows and that has just never happened before. 0:13:40.080 --> 0:13:42.040 You also had sectors in the SMP that had not 0:13:42.120 --> 0:13:45.240 been up, and that that was just so unique about 0:13:45.280 --> 0:13:47.840 what the structure was of the bowl in its early phases, 0:13:47.840 --> 0:13:50.679 where typically even after you go through a non recessionary 0:13:50.720 --> 0:13:53.280 bear you do tend to see a lot of participation 0:13:53.360 --> 0:13:56.080 at any sector level, at any cap level, but we 0:13:56.160 --> 0:13:58.280 just haven't seen that. But I will say, and what's 0:13:58.320 --> 0:14:00.840 been nicer to see this year is that participation has 0:14:00.880 --> 0:14:04.120 really improved, especially since that Midsummer mark where broad at 0:14:04.240 --> 0:14:05.800 seven really started to take a little bit of a 0:14:05.840 --> 0:14:08.760 step back, not outright decline, but take a step back. 0:14:08.840 --> 0:14:11.560 Tech took a step back, even semiconductors. Recently, I find 0:14:11.559 --> 0:14:14.640 that the weakening and that breadth profile actually just fascinating, 0:14:14.840 --> 0:14:16.360 while the rest of the market has actually been able 0:14:16.400 --> 0:14:18.559 to power forward. And that's I think what has actually 0:14:18.640 --> 0:14:21.320 been lost in all of the election related narrative recently, 0:14:21.720 --> 0:14:24.560 especially around some of the strength around areas like financials. 0:14:24.640 --> 0:14:26.360 Financials were strong heading into the election. 0:14:26.880 --> 0:14:29.040 Industrials were strong heading into the election, so it's not 0:14:29.080 --> 0:14:31.840 as if you got this massive shift in the leadership 0:14:31.880 --> 0:14:33.800 profile of the market. I think that's been a relatively 0:14:33.840 --> 0:14:34.840 healthful all year. 0:14:34.960 --> 0:14:38.720 There's been massive churn under the surface of these cap 0:14:38.760 --> 0:14:42.960 weighted indexes. So the Nasdaq had a thirteen percent draw 0:14:43.040 --> 0:14:47.800 down in that Midsummer period of time, but the average 0:14:48.040 --> 0:14:51.920 member draw down for the NASDAK is forty seven percent 0:14:52.320 --> 0:14:56.120 year to date. So sometimes when people talk about the market. 0:14:56.320 --> 0:14:58.920 It sort of begs, well, what piece of the market 0:14:58.920 --> 0:15:04.840 are you talking about? These half weighted into right dangerous? 0:15:04.840 --> 0:15:06.800 Actually, and we've been calling for a good chunk of ear. 0:15:06.840 --> 0:15:08.760 We're calling it the Michael Caine Duck market. You know, 0:15:09.280 --> 0:15:11.760 just calm on the surface, the pattern like the tickens underneath. 0:15:11.920 --> 0:15:13.320 That's that's been how we've been describing it. 0:15:13.360 --> 0:15:15.680 So does though, all right, so what's the environment for 0:15:15.720 --> 0:15:16.480 twenty twenty five? 0:15:16.520 --> 0:15:17.320 Can you make a call? 0:15:18.800 --> 0:15:22.760 Well, we never make a call, okay, So I mean 0:15:22.840 --> 0:15:25.360 I keep worrying what are we missing? We haven't had 0:15:25.360 --> 0:15:28.480 a recession, we have had pockets of recessions, we've. 0:15:28.360 --> 0:15:29.080 Had the role through. 0:15:29.360 --> 0:15:30.200 How are we done with it? 0:15:30.280 --> 0:15:30.440 Then? 0:15:31.160 --> 0:15:34.720 You know, my hope was that we were going to 0:15:34.760 --> 0:15:36.720 get to a point where if we started to see 0:15:36.720 --> 0:15:40.840 weakness show up more acutely in the services sector, in 0:15:40.920 --> 0:15:43.320 large part, probably driven by any further weakness in the 0:15:43.360 --> 0:15:46.480 labor market, that, especially if the FED was an easing mode, 0:15:46.560 --> 0:15:49.000 you might be in a position to see stabilization, if 0:15:49.040 --> 0:15:51.920 not recovery in those areas that already taken their hits, like. 0:15:51.880 --> 0:15:53.200 Manufacturing, like housing. 0:15:53.720 --> 0:15:55.600 I don't want to say that's off the table now, 0:15:56.040 --> 0:15:59.360 but it's a little bit more difficult post election to 0:15:59.520 --> 0:16:03.400 come up with the case for stabilization and improvement in 0:16:03.440 --> 0:16:07.520 those areas, especially if the FED doesn't stay in easing mode. 0:16:07.560 --> 0:16:11.280 We saw this and tempted some recovery in housing, and 0:16:11.320 --> 0:16:13.560 then it faltered again courtesy of the move up in 0:16:13.840 --> 0:16:14.400 long yields. 0:16:14.600 --> 0:16:17.520 So I think the other thing too, from evaluation in 0:16:17.560 --> 0:16:20.560 a sentiment perspective, is that you're getting pretty stretched across 0:16:20.720 --> 0:16:22.440 most of the metrics that we track, and it's not 0:16:22.600 --> 0:16:25.160 just in the traditional attitudinal how do you feel about 0:16:25.200 --> 0:16:28.840 the market? You know, aaii bulbear indicator. It's now filtering 0:16:28.880 --> 0:16:31.600 over into what are investors actually doing with their money. 0:16:31.600 --> 0:16:35.480 We've seen equity ETF inflows completely spike akin to levels 0:16:35.480 --> 0:16:35.960 that you saw a. 0:16:36.520 --> 0:16:37.920 Market funds too. 0:16:38.320 --> 0:16:40.680 Absolutely, yeah, So I think that becomes a little bit 0:16:40.720 --> 0:16:42.680 more of a risk in the event there's a negative catalyst. 0:16:42.680 --> 0:16:44.560 We always say sentiment for off. The sentiment and of 0:16:44.600 --> 0:16:46.920 itself is not a reason that the market just goes lower. 0:16:47.000 --> 0:16:49.160 It has to be tipped in that direction. It's just 0:16:49.160 --> 0:16:50.840 the sentiment backdrop that makes things more proper. 0:16:50.960 --> 0:16:53.080 I also don't think we should look at the money 0:16:53.080 --> 0:16:56.800 and money markets as some giant pool of imminent funds 0:16:57.240 --> 0:16:59.240 dying to go into the equity market. I think that's 0:16:59.280 --> 0:17:00.920 a lot of that is pretty sticky money. 0:17:00.960 --> 0:17:01.480 That's exactly. 0:17:01.520 --> 0:17:03.280 We get one trillion, two trillion, we'll go into the 0:17:03.280 --> 0:17:06.680 avenue market. Well, last we just talked about US equities. 0:17:06.680 --> 0:17:08.760 It's time to go global, which for many years has 0:17:08.920 --> 0:17:10.760 lagged the US. Let's just go to the numbers here, 0:17:10.760 --> 0:17:13.000 because over the last decade, the S and P five 0:17:13.080 --> 0:17:16.800 hundred has on average returned thirteen zero point one five percent. 0:17:16.880 --> 0:17:20.399 The footsy global all cap x US contracts stocks and 0:17:20.440 --> 0:17:23.320