Charles Schwab's Liz Ann Sonders expects the relief rallies in 2023's sector darlings will continue

It does take us to our talk of the tape out best to position in this fast moving market. Let’s ask Lizanne Saunders, chief investment strategist for Charles Schwab. Welcome back. It’s good to see you again. Good to see you too Scott. So we have this nice move over the last couple of days. Do you do you believe in it? Do you think last week was the worst of it? How are you feeling about this market? Well, you know, broadly the market had gotten a bit oversold, especially in areas that had really taken a drubbing. You know, the technology sector had dropped to intraday to only 10% of stocks trading above 50 day moving averages. And I, I think that entice some buyers, not to mention earnings from some of the the mega cap names this week, maybe elevating some interest on the on the buy side. I think it also didn’t eliminate a lot of the froth, but maybe ease some of the fraud That in and of itself had been a a concern. So I, you know, I, I don’t, I, I think we probably revert back to the kind of leadership we were seeing before. But you’re going to get these moves on a day-to-day basis where some of the laggards get, get a bid. Wait, are so you’re suggesting that mega cap is going to once again take the lead and, and stay there? This idea of rotating or broadening is not believable. No, no, no, I’m saying the this year’s winners until recently will probably go back into the leadership position, meaning energy and materials and financials to some degree. I, I think we, we get these relief rallies in areas that were last year’s darlings, But I, I, I believe more in the persistence on the traditional cyclicals, barring more significant weakness that shows up in the economy. Oh, so you, you, you’re on the, the same train then as as Jamie Dimon, who was speaking today at the economic club not that far from here, where he said the economic boom quote is unbelievable. Even if we go into a recession, the consumer still in good shape. So you’re playing for the strong and continuing to be strong economy. Yeah. So I actually think that we may start to see a little bit of pressure on the consumption side of the economy. But I think the more traditional cyclical areas represented by given what’s going on, commodities, materials, again financials, I think that there was a value trade that that kicked in there and energy maybe for obvious reasons. So those are Scott. I think as you know, we relaunched Schwab sector views earlier this year after a 2 two year hiatus during which we’re focused more on factors. Now we focus on both. But fortunately, the three outperform ratings since we relaunched have been on financials, energy and materials and that has not changed. And we think at least near term, that’s likely to continue to be where you see performance leadership. How much do you think this bull market since the October bottom was based on the idea of rate cuts? And how much do you think it was based on the fact that the economy is just strong? And that matters more than anything else? At the end of the day, I think it’s more the latter than the the former. But I also think the rally was driven by what happened with Treasury yields more so than the parlor game of expectations around, you know, when will the Fed cut and by how much. The move from, you know, 5% of the 10 year yield at the end of October down to 3.8% was just a powerful tailwind for the overall market. And that’s why you saw a significant move by small caps during that downturn in yields. I think the recent turn back up in yields initially was to the detriment down the cap spectrum, the zombie type companies, and then more recently started to hit some of the larger cap companies. But I think the resilience in the market has to do with the resilience in the economy. That’s it. As you know, there’s a lot of churn under the surface. The average NASDAQ member has had a 32% drawdown this year. So you don’t really get a full picture of what’s going on in the market if you only look at index level changes. The real story has been under the surface, sure. But if we if we get no cuts this year or maybe even one, but it’s pushed way off until toward towards the end of the year, you still comfortable with this market as long as the economy remains resilient. If the economy remains resilient, we don’t get a significant turn back up in inflation. I think the market is probably OK. A significant turn up in inflation or deterioration in the geopolitical environment. And you know, $100 oil that starts to to have feeder effects into other inflation. And the Fed has stymied in a slowing economic environment by not being able to cut to combat the, the slowing economy because of inflation. That would not be a great scenario. So it would be the the why behind what the, the, the Fed does. What amazes me is again, this parlor game of when will they start? How many cuts? There’s very little that I hear behind that analysis. Like I think the Fed’s going to start, you know, fill in the blank July, September. And the reason why is here’s what I anticipate in terms of the monthly readings on core PCE or core PCE services X housing. Here’s how the base this effects work. So this gets you to something close to the feds target and here’s what I expect on the economy. And that gives the green light for the feds to start cutting. It’s it. It’s more just like throwing a dart at the at the month start point. It depends on on the data and I think that gets lost in in this parlor game.