2024 is a tale of two stock markets: Liz Ann Sonders
And my first guest published a note on Monday with her colleague Kevin Gordon titled Hard to concentrate top heavy market. Joining me now, Charles Schwab and company chief investment strategist Liz Ann Saunders. And Liz Ann, I like the way you started that report. Imagine two strategists having stood on, you know, proverbial debate stage at the start of the year. 1 proclaimed that the stock market or stocks were rip higher in the first half. The other proclaimed that stocks would have a significant correction. Both would have been right. Of course the skeptics are coming around now. You know, I mean, check out some of these jury and adjustments. Goldman Sachs alone has adjusted their targets at four times. So feels like the non believers are jumping into the believers camp. Is that a contrarian sign for you? You know, you're on price targets. By the way, Charles, I think it's such a silly exercise. I get an institution, institutional strategist need to do it or I they believe they need to do it. It's a way for them to be pitted against one another. I always use 1987 as an example. If if I or somebody had put a year end price target at just down a percent or so at the beginning of 87 to the end of the year and basically allow a conclusion to be markets not going to do anything, Was that really right versus what happened on the way to no return in 1987? So I don't pay a lot of attention to those. But it is a tale of two markets and as long as there is this large cap bias, then there do have to be adjustments made to anyone forecasting index level gains. The problem is under the surface, it's been much more extreme in terms of turmoil and weakness and rotations under the surface. The average member within the NASDAQ has had a 39% drawdown this year. The index has had no more than a 7% drawdown this year. So fuller story is being told under the surface. In fact, I want to share a table that you had in that report with the with the audience because it it further, it goes to the point that you're making and it brings up for me two, two questions, right? A, should we expect a larger drawdown in general based on history, right. This five 5 1/2 percent seems pretty shallow. Normally, I think there's at least a 110 percenter. Also, what would shift the focus to finding value? Like when is, when, what is there some sort of something has what has to happen before investors say, I'm going to just go after value rather than chasing performance. So it depends first of all on how you define value. If you define value in terms of your preconceived notions of what sits in value indexes, that's different than saying actually finding value based on the factors or the characteristics of value. Value indexes have not done well, stocks that screen well on value factors have actually done very well. So that's a really important distinction #1 But I'd say for opportunities to present themselves in a more robust way outside of those mega cap names, down the cap spectrum into other areas that aren't just, you know, tech and tech related. Probably needs a bit more certainty on Federal Reserve policy and probably a continued move down in yields or at least eliminating or easing the risk of a big shop back up in yields. That's been the factor that has significantly dented down the cap spectrum, down the quality spectrum, the non profitable weaker balance sheet companies and for it to a broadening out to include some of those segments of the market. I think the bond market largely holds the key to that. So Speaking of the bond market and holding the key, so many things have changed and there's so many things beyond the Fed. All right, you know, the, the Treasury issuance, you know, the these big large, the deficits if if they're, if we're in a new paradigm and four, 3 1/2 four is the 10 year yield. Does the market have to get adjusted to that before it can really make the next leg higher? Because it feels like some folks are holding off until we get a little bit, you know, a little bit more downside on those 10 year yields, whatever never happens. Well, so I think that is part of the reason why we're not seeing the kind of recovery in housing that was at least hoped for when we saw some fits and starts of improvement in housing. I think the stickiness on the high side and yields has been a plague in areas like that and and continues to be a plague by in terms of interest sensitive companies. That interest rate sensitivity has been a real defining characteristic of whether you're on the positive end of the relative performance spectrum or the weaker end of the relative performance spectrum. But I think we have been adjusting to this higher rate environment in some cases. And part of the reason why mega caps have done so well as many of those companies are so cash rich that they're earning more interest on their cash and they're paying interest on their debt. So it's so bifurcated and segmented in terms of whether you've been a beneficiary of this hire for longer backdrop or whether you are hurt from that persisting. Lizanne, I got less than 30 seconds, but I got to squeeze this in. We've got a big debate tonight. At what point does the market start to reflect the polling or you know, at some point it's certainly before the actual election. We'll see some movement in the stock market, won't we? I think there'll be volatility that that's not uncommon. And when you have volatility as low as it is right now, at some point, the path of least resistance for volatility goes up. Could the election of the period between now and the election be a component in that? It's it's probably an obvious yes. All right. Hey, Lizanne, thank you so much. We always learn and that's why I really like love when you come on. We always learn a lot of things. Thank you.