November 5, 2025 • 43 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
At a time when every dip in stocks is perceived as an opportunity, buyers emerged after a brief pullback led by some of the biggest winners of the artificial-intelligence boom. Bitcoin rallied. Bonds fell.
Equities rebounded, with the S&P 500 up almost 1% following a slide that underscored worries over how stretched the market has become and how sensitive it is to unfavorable news. Chipmakers, which bore the brunt of the recent selling, led gains on Wednesday.
Bonds slid as data showed US services activity expanded at the fastest pace in eight months. Federal Reserve Governor Stephen Miran said a report underscoring a rise in employment at companies was “a welcome surprise,” but reiterated rates need to be lower.
Today's show features:
- Rick Wurster, President & CEO of Charles Schwab on Advisor Services as a critical driver of Schwab’s business growth
- Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, on the market outlook for the remainder of 2025
- Omar Aguilar, CEO & CIO of Schwab Asset Management on whether a resilient US economy is poised for a downturn
- Kathy Jones, Chief Fixed Income Strategist. Charles Schwab, on US interest rate outlook and the Federal Reserve
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:08):
This is Bloomberg Business Week, Daily reporting from the magazine
that helps global leaders stay ahead with insight on the people, companies,
and trends shaping today's complex economy. Plus global business finance
and tech news as it happens. The Bloomberg Business Weekdaily
Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Speaker 3 (00:32):
All right, folks, if you really want to know what's
going on in the investment universe, you really want to
talk to the folks at Charles Schwab.
Speaker 4 (00:37):
It is a great place to start.
Speaker 3 (00:39):
First of all, it's one hundred and seventy five billion
dollar market cap company. Stock is up about twenty six
percent year to day following its recent earnings. At least
eleven analysts raise their price target on the stock after
Schwab's third quarter earnings beat thanks to a surge and
retail investing activity.
Speaker 4 (00:54):
And it's something we certainly want to dig into.
Speaker 5 (00:55):
Yeah, let's talk.
Speaker 1 (00:56):
About some your numbers behind the firm. Eleven trillion dollars
more than that in client assets, thirty eight million client
BROKERIDG accounts, two point two million bank accounts, five point
six million workplace plan participant accounts and over sixteen thousand
independent investment advisors, thousands of them are here at Schwab
Impact twenty twenty five and Denver.
Speaker 3 (01:12):
New Rick Wurster took over CEO in January this year
after previously serving as president for about three years at
the company, who was head of Schwab Asset Management Solutions
before that.
Speaker 4 (01:22):
So you have been at the company company for nearly
a decade, is that right?
Speaker 6 (01:25):
Yes, welcome, thank you, thank you, Thanks for having me
on and we're so thrilled that you made the trip
to be here in Denver at the conference.
Speaker 3 (01:32):
Well, we love coming here because we really do feel
like it's good to get out of I feel like
the coasts, and I feel like it's good to talk
to the people who are actually managing tons and tons
of money on a daily basis. Talk to us about
your first year and some of what's been coming at
you and how you and your team are making sense
of kind of the investment environment when things can change
often on.
Speaker 4 (01:50):
A day to day basis.
Speaker 6 (01:51):
Well, the most rewarding part of the first year has
been serving our forty six million clients, and it's been
a year in which the value of what we bring
to the table, great in person experiences, the leading digital app,
the strength of our bank and wealth capabilities, where all
of those things have been necessary to help clients navigate markets.
So that's what I take most from the first year.
(02:13):
It's just such an incredible opportunity to serve our clients
and the sixteen thousand advisors on our platform, many of
whom are here. It's real honor to be their partner
in business.
Speaker 1 (02:22):
Well, the market environment right now, we want to dive
right in there because really this week we've heard from
different Wall Street executives that an overdue collection of weighed
on the market this week, so reduced expectations at bed
rate cuts up, prolonged government shot down. Michael Berry added
to the negative tone with his disclosure of farish wagers
on talent here and Nvidia did buyers. Though, coming back
(02:43):
into the trade today, retail investors have been buying dips.
How do you see today's environment from sort of a
risk reward perspective.
Speaker 6 (02:50):
We try to focus our clients on the long term.
I think that owning securities and assets over long periods
of time will generally go up. It's really hard to
get the time of markets down because you have to
make two correct calls. First, you got to nail it
to get out at the right time, which is really hard.
In the strength of the kind of market we've had
(03:10):
in the momentum, we've had to get out at the
right times incredibly hard. And then you've got to be
able to get back in at the right time or
you miss out. I was down in Charlotte, North Carolina,
visiting with some clients and I heard from one client
who back in twenty sixteen didn't like the presidential administration
and so had sold out of stocks. And this was
back when we were having a pullback, and they said,
(03:31):
would now be a good time to get back in
the market, and they'd set out a huge amount of
gains over a short term point of view. We try
to have clients avoid that. Clients can stay in the
market and tolerate some volatility. We think over the long
run that gets rewarded because it is so hard to
call the markets both when to get out and when
to get back in.
Speaker 3 (03:48):
So as you walk around the floor and you're talking
to advisors, I mean, what are they talking about, you know,
in terms of timely advice that you're getting maybe from
the advice and what they are.
Speaker 4 (04:01):
Kind of hearing from their clients.
Speaker 6 (04:03):
I think one of the most pressing topics from investors
today is how to navigate concentrated positions. The S and
p's as its concentrated as it's.
Speaker 4 (04:12):
Ever been, right, the mag seven, the big tech.
Speaker 6 (04:15):
Yes, and it's created tremendous wealth for lots of retail investors,
and now they're wondering how to diversify their portfolio and
to do so in a way to minimize their tax burden.
And there's all kinds of strategies that they can work
with their advisor on to create a more diversiti portfolio
without having to pay a tremendous amount in capital gains.
Speaker 3 (04:33):
How hard is it, though, that when clients are like,
but why would I want to get out of Nvidia
when I've seen what they've been doing for how many years?
Speaker 6 (04:40):
Like?
Speaker 4 (04:40):
How tough is that?
Speaker 3 (04:41):
Because we constantly have conversations of people saying it's time
to broad naw back off the big tech, and then
it's the big tech with so much momentum.
Speaker 6 (04:49):
Well, you're absolutely right, and it's a really hard conversation
to have, and oftentimes we don't win it, but we
want to make sure the client is cognizantive of the
risk and the choice that they're making. Yeah, and to
be fair to those investors, they've been right by sticking
with their concentrated position for the most part, because the
names that have driven the market higher have been the
same ones here for a while, and so many people
(05:10):
have stuck with it, and they are sitting on more
gains and they might have anticipated.
Speaker 1 (05:14):
So let's go further into the retail trader, because they've
grown about twenty percent of the US equity market today.
I'm curious about sentiment trends, like how the structure of
this trend, how resilient are retail traders in an eventual downturn.
Speaker 7 (05:27):
Why.
Speaker 6 (05:27):
I think retail traders have been the ones leading the
market higher and have been the ones buying the dips.
And I think they were out actually in many ways,
out ahead of the institutional buyers. And so I think
you have a retail buyer that has strong hands and
will stick through the market. So, you know, we'll see
how it all plays out. But markets go up and
down and retail investors will inevitably, you know, make some
(05:49):
decisions in there that's best for them.
Speaker 1 (05:51):
People here retail investor, they think about the Robinhood for example,
your customer versus robin Hood's customer base. What are the
differences there.
Speaker 6 (05:58):
Well, our customer is an incredibly thoughtful group of retail investors. First,
they have access to what we think are the best
investing platforms in the industry. Number two, they have access
to the most robust research platform. We produce thirty five
hours a week of live education and training for investors,
so they're making the most informed decisions. We also don't
make them choose a channel, not only the leading digital app,
(06:21):
but they can walk in and talk to someone. They
can call our phone and get their question answered in
less than thirty seconds. We have one thousand professional traders
that wake up every morning ready to answer the phone
to help our clients trade. So I think we bring
everything we can to help our clients be successful, and
I think they make thoughtful decisions that are best for
their financial life.
Speaker 3 (06:41):
Now, you guys have talked about one third of your
clients are gen z, so talk to us about how
you continue to bring them in.
Speaker 4 (06:47):
How do you defend them keeping them in?
Speaker 3 (06:49):
What do you need to kind of do to serve
them and keep them on your platform.
Speaker 6 (06:53):
So one third of our new to firm clients are
gen Z, which is between the ages of thirteen and
twenty eight. We are having tremendous success.
Speaker 4 (07:01):
That was new customers, right.
Speaker 6 (07:02):
New customers, but we're having tremendous success with the young
investor because we see through their eyes and we put
all the weight and strength of our firm behind helping
them live their best financial life and make the smartest
financial decisions for them. We don't just say, hey, here's
a platform, go for it. Certainly many want to do
that and they can have at it, but we also
stand behind every one of them. If they want access
(07:23):
to our research, they want to talk to a professional,
and in terms of where we're finding them, it's interesting.
I went to our marketing department and I said, I
don't see enough about our advertising to young people, and
they said, Rick, it's because you're not cool and in
the places where young people.
Speaker 4 (07:38):
Go, but we're Does that hurt It hurts a little bit.
Speaker 6 (07:41):
We're the number one followed financial services company on YouTube.
We're all over TikTok, We're on all these different places
where young people are and they're attracted to the to
the breadth that the Schwab value proposition and how different
it is than other offers they see in the market.
Speaker 1 (07:54):
Well, speaking of what's out there in the market, wait,
we go ahead.
Speaker 4 (07:56):
Are you going to ask that crypto?
Speaker 1 (07:58):
No? Not yet?
Speaker 4 (07:59):
Do you want to wait? I want a way.
Speaker 1 (08:00):
I want to ask about prediction markets. Okay, because this
is something that I think gen Z wants and polymarket
is back in the US. It is certainly related to crypto, right, Caryl,
What role does Schwab have in prediction markets in the future.
Speaker 6 (08:14):
Well, I think prediction markets started out with financial services
companies with the best of intentions. They wanted their investors
to be able to bet on what was going to
happen with the inflation report, what's going to happen with
the job report, or what the Fed's going to do.
And they realized that there's not a lot of volume
and interest in those events in the general public, and
that there's already ways in financial markets to invest around
(08:36):
those activities. And then the election happened and the volume
in prediction markets skyrocketed, and these companies got a windfall
of money. And then they said to themselves, well, a
presidential election only comes one every four years. How do
we generate this level of interest on more of an
ongoing basis so we can see this wind fall more regularly.
(08:56):
And then they migrated from things that were tangentially related
to financial markets to pure sports gambling because every Saturday
and Sunday there's lots of activities that the nation cares about.
And now I think we're in a world where what's
driving all the volume and prediction markets is pure sports gambling.
Speaker 1 (09:12):
So yes or no for SAP getting involved.
Speaker 6 (09:15):
Look something we got to keep an eye on. You're
considering it, we're not actively considering. And the reason we're
not actively considering it is our mission is to make
our clients better off in their financial life. Five percent
of people and actually read this on Bloomberg very early
this morning, five percent of people that put money into
a gambling app take out more than they put in
in the first place. So gambling has proven to be
(09:37):
a negative contribution to your wealth. Now, it's fine if
you use it as entertainment and you're doing it in
a thoughtful way, But our mission is to make clients
better off in their financial life and enhance their wealth.
Speaker 3 (09:47):
Does that then say to you that it's not a
good idea in terms of the prediction markets and kind
of mixing them with traditional investing.
Speaker 6 (09:57):
From my viewpoint, we want to do everything we can
to put our clients in the best chance to grow
their wealth. And I think it's fine for people to gamble.
People are going to gamble, hopefully they do it in
a responsible way. The thing I worry most about is
the conflation between gambling and investing. If you're a young investor,
you've got ten thousand dollars in your account, you can
move it easily between investing in a stock that over
(10:19):
the long run is likely to go up over the
course of your life, or you can go bet on
the Eagles game that weekend. I think that is not
the greatest thing for the retail investor.
Speaker 3 (10:29):
Speaking of gambling and perhaps gamification, crypto we're just crypto
fit into all of this for you guys.
Speaker 6 (10:35):
Well, crypto has become an asset class that many people
have their full confidence and trust in and they view
it as a store of value. In our platform, we
have lots of people engaged in crypto today. In fact,
our clients own twenty percent of all the ETPs crypto
ETPs in our country. So our clients are big investors
(10:55):
in crypto, and for most people, buying the exchange traded
product is the right way to go because they're not
looking to transact in bitcoin, they're just looking to get
exposure to the price movements. Now, in addition to offer
an ETP, we will in time offer spot crypto. And
we're confident that we've got clients that are sitting at
digital native firms that have been long Schwab clients that
(11:17):
we no want to bring those assets back to Schwaman.
We're looking forward to being able to do.
Speaker 1 (11:20):
That this year, next year, next year, still first off
of twenty twenty six, that's where we're shooting.
Speaker 6 (11:26):
Focus and so far, so good. He soon you have
an idea, I'm not going to get that specific. I
get slapped here by someone.
Speaker 1 (11:35):
Well, last speaking of last year, you sat in this chair.
We were in San Francisco and we had a fun
conversation about crypto. You made headlines. You said this was
a year ago. I have not bought crypto now, and
I feel silly. You also said crypto investors have been
right in that you haven't been right, So update us.
Speaker 6 (11:52):
Have you bought crypto. Since then, I have not bought crypto.
I have nothing against crypto. I can certainly see the
case of it. If people believe it's a score of value,
it is scarce and it could go up. I think
the blockchain is something that is likely to play a
bigger part in markets, and therefore crypto can have some
value around blockchain. For me personally, my investments are an
(12:14):
assets that I consider to be productive assets or generating earnings,
are generating principle or interest, and that's where I focus
my investment place.
Speaker 1 (12:20):
It's interesting that you say that because when you said
that comment to us last year in the middle of November,
bitcoin was at and we were talking about bitcoin was
at one hundred thousand dollars. Right now it's at about
one hundred and four thousand dollars, So you look right
by not actually getting in.
Speaker 6 (12:35):
Right then possibly and bitcoin and crypto generally is going
to go up. It's going to go down. It's volatility
is something. It's standard deviation is something like fifty percent,
so we should expect wild swings. And for the right
group of folks, they want to own it, they believe
passionately in it, and they should have it. As part
of their portfolio. For some investors, it's what they want
to invest in.
Speaker 3 (12:54):
Private credit, private markets. How about that in terms of
you think the role that that will play.
Speaker 1 (13:00):
In our retirement portfolios, in our retirement accounts.
Speaker 4 (13:04):
How do you feel about that one?
Speaker 6 (13:06):
Well, you're a great private company. There's lots of great
private companies in our country that have found really well.
I think retail investors should be exposed to private opportunities.
We would like to bring it to market in three ways.
Number One, we access, We provide access to retail clients
to great alternatives managers and private equity, private credit, venture capital,
(13:26):
a lot of the names that you're familiar with. Second
thing is I think at the right time, we would
love to be able to offer passive exposure in a
fund like structure to private markets. Just like in public
markets today you can go buy the S and P
five hundred x fund and get broad representation of stocks.
You should be able to do that in private markets.
(13:47):
We'd love to play a role in that in the future.
And then third, like you can buy individual stocks if
you don't want either the active management or the passive
exposure to the broad market. I think that marketplace for
single security. Private companies should expand over time. And so
those are the three ways we envision the market expanding,
and we want to play a role in all three.
Speaker 4 (14:07):
Do we have to wrap?
Speaker 3 (14:09):
Can I get you twenty thirty seconds on elections and
changes and environments and I think the midterms and what
might happen next time at the White House. How does
that fit into your thinking in terms of long term
strategy for the company. Because we've had a vault a
year a little bit.
Speaker 6 (14:23):
Markets have thrived through all types of administrations and changes
and presidents and changes in the Senate and House and
all of that. And so our message to clients is
stay diversified and be invested, and stay invested in and
have a plan for your financial life. And if you
do those things, they'll navigate different ups and downs associated
with different administrations. And that's our council to clients.
Speaker 4 (14:45):
All right. So appreciate your time as always and all
time to be at your event.
Speaker 6 (14:49):
Always love seeing you here, and I appreciate the commitment
you both made to be here in Denver and be
a part of the Impact conference.
Speaker 1 (14:54):
Thank you well, Hopefully we'll see you next year and
more between.
Speaker 3 (14:56):
Now and then yeah, exactly, Rickhurster Presidency of Charles Schwab
of course, kicking off our coverage here at Schwab Impact
twenty twenty five.
Speaker 4 (15:03):
We are here in Denver, Brick again, thank you so much.
Speaker 5 (15:07):
Stay with us.
Speaker 1 (15:07):
More from Bloomberg Business Week Daily coming up after this.
Speaker 2 (15:14):
If you're listening to the Bloomberg Business Weekdaily podcast, catch
us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 3 (15:29):
I gotta say gains the S and P five hundred.
I just want to mention, since April, I have seen
the US benchmark de couple significantly from its moving averages.
The gap with the two hundred day gap gauge widened
to thirteen percent in October. It's a level that's usually
proved unsustainable in the past fifteen years. Meantime, the index
is now traded above it's fifty day moving average, of
the longest since twenty eleven.
Speaker 1 (15:49):
So so everything is awesome.
Speaker 4 (15:50):
Everything I don't know. We're going to ask what she's
shaking her head.
Speaker 1 (15:54):
Let's get into it with lyz Ane Saunders. She joins
us here at Swab Impact. She's chief investment strategist, Charles Schwab.
Everybody knows liz Ane Saunders. How are you?
Speaker 4 (16:03):
Yeah, I'm good.
Speaker 8 (16:04):
I'm so glad you're hearing again. Welcome to our cozy,
little event.
Speaker 5 (16:09):
Five people.
Speaker 1 (16:10):
It's not cozy and it's not little, but we are
happy to be here. It's a huge event. It was
huge last year in San Francisco. It was huge before
that in Philadelphia. Were you were shaking your head when
I was saying everything is awesome?
Speaker 9 (16:24):
Why, Well, it's it's a bit of a tale of
two markets.
Speaker 8 (16:27):
You've got cap weighted index returns and the lack of
any significant downside, particularly since the April eighth closing low.
Speaker 9 (16:35):
But here's an example.
Speaker 8 (16:37):
The average member within the SMP just since April eight
has had a sixteen percent now actually seventeen percent draw down.
The average member within the Nasdaq since April eighth, when
the nasdac's up fifty odd percent, has had a average
maximum draw down of thirty six.
Speaker 4 (16:53):
So the breath isn't there.
Speaker 8 (16:54):
The breath isn't there, but there's a lot of churn
and rotation going on under the surface that you don't
pick up. If you're only looking at the index level returns.
Speaker 3 (17:04):
So do you think the pullback that we saw, which
was I didn't want it really much yesterday, but do
you think it is are we starting to see signs
where investors are kind of questioning some of the valuations
that are out there, the AI spend and whether we're
getting the return on investment on it.
Speaker 8 (17:19):
Tell us you're thinking, I think the margin of era
has narrowed a bit. There's obviously sensitivity, whether it is
diminution in return on invested capital, whether you're seeing pressure
on margins. Obviously, the concern about the circularity of financing
and the fact that so far that's.
Speaker 4 (17:38):
A real thing.
Speaker 3 (17:39):
I mean, we are kind of blown away what feels
like it's all in the family.
Speaker 1 (17:43):
Yeah, here's five billion dollars, so you can buy five
billion dollars with the stuff from us, right.
Speaker 8 (17:47):
You guys, Bloomberg had this incredible visual that I think
made it on Michael Burry's post.
Speaker 9 (17:56):
Yes, but it's that is such a great visual.
Speaker 8 (17:59):
I've seen are simplistic ones of a you know, a
power strip with the plug plugged into the power strip.
Speaker 4 (18:06):
Yeah, but that's exactly true, right.
Speaker 8 (18:08):
And I think you know, the boom so far has
been financed out of cash flows.
Speaker 9 (18:12):
It's been largely equity financed.
Speaker 8 (18:13):
But now you've got as to just pick on the
MAG seven cohort.
Speaker 9 (18:19):
MAG seven free cash flow growth has.
Speaker 8 (18:21):
Gone from more than sixty percent year over year six
quarters ago to now two quarters in a row of
negative and so you're starting to see more deals financed
with that. That's not necessarily a bad thing. It's just
a different environment.
Speaker 3 (18:35):
But that I do want met in alpha that right,
didn't they just recently do it over subscribe like there's
lots of investor interests, but I do like, I don't know, Liz,
what we just have to keep an eye on it.
Speaker 8 (18:45):
Or I think you know, evaluation is a is a
tough one. I think valuations and I'm going to say
this generally, not just specific to AI stocks or Max seven,
it's not a market timing tool.
Speaker 9 (18:59):
It's more it's more a temperature gauge than it is
a timeing gauge. It's almost an indicator of sentiment.
Speaker 8 (19:05):
There are times where evaluations can get stretched, and they
can get more ridiculously stretched, and the market still has
a long runway ahead of it. So I think it
represents some of the angst that's coming into the narrative
right now, but it doesn't necessarily pretend impending doom. It's
just a it's a cost saver AI and it boosts margins.
(19:27):
So we had the early focus solely on the hyperscalers
and the chips, and then more recently it's gone into
the energy usage in the data centers.
Speaker 9 (19:37):
Now, I think where you're actually getting.
Speaker 8 (19:39):
Meat on the bones in terms of productivity statistics, in
terms of the beneficial to costs is the users of AI,
and I think that is likely to continue.
Speaker 1 (19:51):
But then does it create this destructive elopment in our
society as a result of those entry level jobs, those
white collar jobs, those blue caller jobs that end up
being completely eliminated. I mean, I know we're talking about
a future that none of us can see. But we
had an interesting conversation with David Weston last week and
he was basically like, how do we have this payoff
(20:14):
without the money savings from getting rid of all these employees.
Speaker 10 (20:17):
Basically, I think.
Speaker 8 (20:18):
That we're in a moment of creative destruction to quote Trumpeter. Yeah,
and that happens anytime we have a major innovation or
we've shifted our economy from being an ag economy to
industrial industrial to innovation, and that happens, but ultimately new
types of.
Speaker 9 (20:33):
Jobs are created.
Speaker 8 (20:34):
I actually think that companies that don't adopt AI are
going to have more job losses. I think what we
need to bring in is what AI doesn't yet provide
and maybe won't ever, you know, the seeds creativity and
culture and community and connection context. So I think there's
(20:56):
still I still think AI. Yes, it is certain kinds
of jobs, but I think it's replacing tasks more than
it's replacing full occupations. But I think workers have to
adapt to it and adopt it and bring it into
their lives or they will.
Speaker 9 (21:15):
Be left behind.
Speaker 7 (21:16):
You know.
Speaker 3 (21:16):
I pulled up my phone because someone came up to
us and Dwayne, who is a financial advisor, he's here
and he said, you guys did something on AI. You
did you did something at an event and we had
somebody who showed how to use AI. And he said,
after that, I went home and started playing which actually,
because you.
Speaker 1 (21:33):
Had a panel you did it at this conference last
year in San Francisco. No, it wasn't, No, I don't
think so, Okay, well it was something.
Speaker 4 (21:39):
But anyway, there's a lot of stuff there.
Speaker 3 (21:41):
But but what he said is he was able to
ask a questions.
Speaker 4 (21:46):
Do analytics so much faster? It was accurate?
Speaker 3 (21:50):
And he said it just took less time and I
actually produced better returns.
Speaker 4 (21:54):
For my clients, which was pretty cool stuff.
Speaker 9 (21:56):
It is a game changer.
Speaker 8 (21:57):
But the hallucination rates are still high enough. There are
low school digits, but high enough that I think it
was Gene Munster. He spoke right before me at a
recent conference, who who said, you know, lms are like
an intern. They do a lot of them work for you.
Speaker 9 (22:18):
But you kind of have to check their work.
Speaker 4 (22:20):
Got to keep an eye on them.
Speaker 3 (22:21):
Yeah, next six to twelve months, what do you think
the investment environment looks like.
Speaker 8 (22:25):
I think these bifurcations that have pervaded the economy, even
the inflation data and obviously the stock market, I don't see.
Speaker 9 (22:32):
A convergence to any significant degree.
Speaker 8 (22:35):
I think you're going to still see those bifurcations, whether
it's from a capex perspective, AI or non AI, asset
owners versus non asset owners, high income consumers versus low
income consumers, tariffed impact goods versus non tariff impact goods
from an inflation standpoint, and then obviously all those by fifreciations.
What I would watch for that may be interesting is
(22:55):
we could have a situation where if some of the
megacap names, some of the leadership names, continue to have
some sort of pullback phase, watch what the rest of
the market does. I don't think it's going to be
extreme as late twenty twenty two. But what was interesting
about that low in October of twenty twenty two relative
(23:16):
to the low prior to that in June of twenty
twenty two, is that when you had the real crush,
there was greater participation under the surface.
Speaker 9 (23:24):
That's what you want to look for.
Speaker 4 (23:25):
We will do that.
Speaker 3 (23:26):
Liz, Thank you so always great to see this as signer.
Do same here chief and bustmas strategist at Georles Schwab.
Speaker 1 (23:32):
Stay with us. More from Bloomberg Business Week Daily coming
up after this.
Speaker 2 (23:40):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and the Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our
flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
Speaker 4 (24:00):
Can't wait to get to our next guest. We're gonna
have a lot of fun with him. Omar Ayulaar.
Speaker 3 (24:02):
He's CEO and CIO of Schwab Asset Management. We're just
talking about just how much money is under the Schwab universe.
We're talking about one point six trillion dollars in assets
under management.
Speaker 1 (24:12):
Omar joins us here on site at Schwab Impact twenty
twenty five in Denver. Good to be with you again.
How are you.
Speaker 5 (24:17):
Doing very well?
Speaker 11 (24:18):
You know, can't you believe this is the thirty fifth
year we have done Impact and for me it's fourteen years.
Speaker 5 (24:24):
It's just unbelievable.
Speaker 1 (24:25):
Well, let's talk about this year because as we were
chatting ahead of this interview, you you made the joke
I wish we could just end the year right here,
because it's been a good year. It's been a good year,
but what does that portend for the next you know,
two months.
Speaker 11 (24:37):
It's been great for investors. It's been great for investors
to actually see that. I would probably say there.
Speaker 5 (24:42):
Were many points throughout the year where we all wish things.
Speaker 11 (24:46):
Were actually going to be different, and I don't think
anybody anticipated, you know, that we're going to be at
this stage, you know, so far into this year. You know,
from the beginning of the year, the uncertainty around administration
to liberation day to recovery to you know, the rise
of AI, to the economy, the consumer, all the way
to where we are now. It's such and such as
being a ride that I think investors have taken advantage of.
Speaker 3 (25:08):
You know, I was thinking about your background and I
just want to lay that what you've got twenty five
years of investment management experience and equity markets. You've seen
a lot of cycles, and I know, I think I
often reach out to you guys to ask you about this.
Speaker 4 (25:20):
What do you make of some of the recent stress.
Speaker 3 (25:22):
That we've seen omar, whether it was concerns about credit,
some of the regional bank issues. Again, we've heard different
stories about whether or not credit concerns or something that
might linger for a little bit.
Speaker 4 (25:33):
And then there's the private you know, credit market. So
how do you see it and do you see.
Speaker 3 (25:38):
It at all impacting kind of the tone of trade
and activity on your platforms?
Speaker 5 (25:41):
Yes, it is.
Speaker 11 (25:42):
It is interesting because yes, I have seen a lot
of tychles.
Speaker 4 (25:47):
I have too, So we're just like a good bottle.
Speaker 5 (25:49):
Of wine, you know, my gray hairs, you know, you know,
take a pride of it.
Speaker 11 (25:54):
But but yes, you know, it is interesting because you
know what we what I have seen historically, is you
actually go through the source of what is actually maybe
the reasons why something cracks. There will always be in
every single cycle, you know, areas of rest that are
what we call ideasyncratic.
Speaker 5 (26:10):
That's just che a fancy.
Speaker 11 (26:11):
Word, but you know what that means is that there
will always going to be things that will happen that
will make people nervous, and we just need to understand
whether it's systemic or is.
Speaker 5 (26:20):
Just isolated to a certain area.
Speaker 11 (26:21):
Interesting enough, you mentioned about you know, the particular the
credit market. You know, the credit market has been incredibly
resilient since two thousand and eight, and I think when
you look at the current even the high yield market,
you knows, not as junky as it used to be.
You know, I remember back in you know, two thousand
and five, two thousand and six or two thousand and
you know one in two thousand and two, those were
(26:43):
periods where you will really feel that there was a
lot of delinquencies, there was a lot of resk, there
was a lot of uncertainty around them. When you look
at it today, you know, the delinquencies are growing, right,
but not outside of the normal you will have in
this part of the cycle.
Speaker 4 (26:56):
Why do is think that's not happening well?
Speaker 5 (26:57):
And a lot of that has to do with corporate America.
Speaker 11 (27:00):
You know, their balance sheets are fairly fairly strong, and
the amount of leverage that you see in corporate America
has is basically to the lowest in many decades. So
what that actually means is that, yes, companies that are
taking excess leverage to steps risk and they're more.
Speaker 5 (27:13):
Risky, and the way they manage their business, you know,
they're clearly more at the risk end.
Speaker 11 (27:18):
But the majority of America it's actually pretty solid in
terms of how they.
Speaker 5 (27:22):
Manage their balance sheets.
Speaker 11 (27:23):
And in fact, a lot of the reasons we're talking about,
you know, in other forums about the reasons why tires
have not been having the impact as big as it
has been is because profit margins have been very, very
benign and have been not been affected as much.
Speaker 1 (27:38):
So does that mean that it's only a matter of
time before we actually see inflation as a result of
these tariffs. When these companies say we're not gonna we're
not going to pad the impact anymore with our with
our healthy profit margins, we're ready to pass these on.
Speaker 5 (27:52):
Well, we're already seeing some of that. We're ready seeing
two things.
Speaker 11 (27:55):
One is we're ready seeing companies that are they're not
going to have a choice, but actually passed through those
increasing process to the consumers. You know, we have seen
those companies that have the biggest you know, opportunities and
the biggest wide is margins. They're they're already good, but
there are ones that are getting a squeeze and a squeeze. We'
already see some of that already in the early parts
of this earning season. The second part of that, we're ob
(28:17):
serving its consumption, you know, consumers and the demand destruction
starting to happen. You're starting to see a little bit
in terms of like you know, airlines and the tickets
and you know, you see that actually on my way
here for the first time, the plane was not full.
That was unique because you know, for the entire year,
you know, you always go there and it's actually big,
(28:38):
big chunk of it. So you can see a little
bit of that consumption starting to just get affected by it.
Speaker 1 (28:42):
This happened to us last month on our way back
from Los Angeles. The person at the gate said, this
is crazy. It's been full pretty much until now. The
flight was empty heading back.
Speaker 2 (28:52):
Yeah.
Speaker 1 (28:52):
Again, it's an anecdote, yea by hearing it from airlines.
Speaker 3 (28:55):
Yet, But the airlines have been so smart about keeping
those planes packed right, and so to me it seems
like a clear indicator. I know, I said, you've seen
a lot of cycles, but I think about your background
Lehman Brothers, Merrill Lynch. These are firms that are no
longer around, you know, post GFC, the Great Financial Crisis.
So I guess I always try to think, you know,
what are we missing in an environment where so many
(29:15):
people are like, it's okay, it's okay, it's okay, And
I'm like, what are the possible risks do you think
for investors in this environment?
Speaker 11 (29:23):
Well, we have seen and actually we saw this in
the last six weeks. If you look at the performance
of those companies that did not do not have positive
earnings negative earnings companies in small and midcalf sectors, they
outperform by almost twenty percent in a short period of time,
so what.
Speaker 5 (29:41):
Is called the junk round.
Speaker 11 (29:42):
And in many cases the concern is that this component
of excess goes into areas that goes like that, and
that volatility is not healthy. You know volatility when you
have something that is extreme valuations. They're still generating earnings,
but you know that there are multiple is way ahead.
Speaker 5 (29:58):
It is normal and is healthy. And in fact, we
I tend.
Speaker 11 (30:00):
To, you know, do these to clients and advisors here
to say, hey, look some polatility is healthy.
Speaker 5 (30:05):
You know, you don't want to straight up market.
Speaker 11 (30:08):
I think the exposure to momentum, it's one that I
have seen in many cycles. It blows up, you know,
it goes very quickly up and it just blows up
very quickly.
Speaker 5 (30:17):
It doesn't have to be all the cancer.
Speaker 11 (30:18):
So the concern we have now is that there is
too much momentum in the market or still and it
needs to be you know, somehow corrected.
Speaker 4 (30:27):
Is it the AI trade momentum?
Speaker 5 (30:29):
It is it is beyond just the AI trade, you know,
the AI trade.
Speaker 11 (30:32):
You know, if you look at it, you know a
lot of that is being represented in CAPE. So the
capital expenditure from Maoria company, it's translated into AI, and
those companies are generating flows, not not all AI companies.
Speaker 4 (30:43):
Now they're debt market, they're.
Speaker 5 (30:45):
Tapping debt markets.
Speaker 11 (30:46):
And at the same time, you're starting to see that
there's companies that are spending in capital that they're not
seeing their returns. They're starting to just be questioned about
their capital expenditures and there are rois.
Speaker 5 (30:57):
So I think some of that it's healthy, It is
the right thing.
Speaker 11 (31:00):
Not all AI is going to be the same, and
I think to me that is a good thing for
that consolidation.
Speaker 5 (31:06):
A little of those pieces will actually come to prey.
Speaker 3 (31:08):
But if there's a blow up, is it the AI
thing or is it something else?
Speaker 4 (31:11):
Maybe In terms of risk.
Speaker 11 (31:13):
Well, you know, I think it's just generally market because
the concentration, the concentration risk.
Speaker 5 (31:17):
Is the one that worries me the most.
Speaker 11 (31:19):
You know, if you think about until this moment, you know,
only thirty percent of the.
Speaker 5 (31:23):
Companies in the S and P five hundred have outperformed
the index.
Speaker 11 (31:27):
The rest have underperformed, right, So you can actually just
feel how that translates into, you know, significant amount of
rebalancing that needs to happen for this to continue.
Speaker 5 (31:36):
And again going back to where you said, this is
repeated in the past.
Speaker 11 (31:40):
You've seen it was energy at some point, it was
you know, consumer discretionary, at some other point, it was.
Speaker 5 (31:45):
TechEd back in the two thousand.
Speaker 11 (31:46):
So this time, even though it's not the same as
we're back there because companies are generating free cash flow still,
you know, you feel that there's going to be some
rebalancing that needs to happen.
Speaker 3 (31:55):
Would we have to talk to you to get more
time with you. I'm just going to put out there
we want to talk to more to your people. We can
get more time with you. Omar, Thank you, always, always appreciated.
Speaker 10 (32:03):
Omar A.
Speaker 6 (32:03):
Goolaar.
Speaker 4 (32:04):
He's CEO and CIO of schwap Asset Management.
Speaker 1 (32:07):
Stay with us more from Bloomberg Business Week Daily coming
up after this.
Speaker 2 (32:15):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five pm Eastern
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 1 (32:30):
Yesterday on the plane, yeah, I'm writing my interview with
Kathy Jones, and I'm curiously Oh, I got some stuff
to talk about because there's a flight to quality happening
right now.
Speaker 4 (32:40):
I like that you did.
Speaker 1 (32:40):
And then today I know it's basically like, oh, erase
the whole intro. I know, the flights of quality that
we saw yesterday exactly isn't happening.
Speaker 10 (32:48):
I don't know.
Speaker 4 (32:49):
Keath decent maybe data today I guess.
Speaker 1 (32:52):
That's what it was. But does that change the narrative?
I thought yesterday change the narrative.
Speaker 4 (32:56):
It's a long term narrative.
Speaker 1 (32:57):
Let's see what Kathy Jones has to say. She's Chief
Fixed incomes to your just at the Schwab Center for
Financial Research.
Speaker 3 (33:01):
He joined us here on site at he has to
figure out the longer term narrative.
Speaker 1 (33:06):
I thought, I thought yesterday was kind of this turning
point with this flight to quality equity sell off. There
was this chorus of Wall Street executives who were like, Okay,
not so fast.
Speaker 5 (33:17):
What did you think?
Speaker 7 (33:18):
Yeah, it certainly felt like the stock market was getting
a little you know, yippie.
Speaker 1 (33:23):
That's what the President said earlier this year. Yeah, but
he's about the bond market. He said, yeah, yeah, as
you know.
Speaker 10 (33:30):
Now it's their m at the stock market.
Speaker 7 (33:32):
And so I thought, you know, we had a decent
bid in the bond market, but it wasn't huge. You know,
in the times past, if you had a really good
sell off in the stock market from elevated levels, you'd
get a big jump.
Speaker 10 (33:46):
And we didn't get a big jump.
Speaker 1 (33:47):
Why didn't you know?
Speaker 7 (33:48):
I don't I'm not sure that the bond market has
a lot of room for longer term yields to go
down absent a very big change in the economic outline.
Speaker 4 (34:00):
So there's a floor, you see.
Speaker 1 (34:01):
Yeah, he's a big change in the economic outlook. If
the Supreme Court says, sorry IPA tariffs, yeah, those are
those are those are not legal?
Speaker 7 (34:10):
Yeah, I don't think that has a big impact on
the box hundred billion dollars that could go back to
companies and consumers that we have.
Speaker 1 (34:17):
Yes, I do trillion.
Speaker 7 (34:18):
In terms of the bond market, I'm growing and is
a fairly small drop of the bucket. And you know,
then how how fast does that actually get back to
somebody's pocketbook for spending. But you know, in general, the
economy seems to be chugging along great. Okay, it's not
great for everybody, but in aggregate it's good enough. Inflation
(34:39):
is stuck at three percent and kind of edging higher,
where where do we go from here? If you've got
inflation at three percent, maybe moving up at a four
percent ten year yield, you know, that's that's equilibrium right now.
Speaker 10 (34:53):
We need something to.
Speaker 4 (34:54):
Change, and you do you think it's going to change.
Speaker 7 (34:58):
I think in twenty twenty six we'll probably get enough
slow in growth and some easing and inflation that will
seields come down.
Speaker 10 (35:07):
But I think the market was just way.
Speaker 7 (35:09):
Over its skis expecting the Fed to cut over and
over again. And it is very difficult to forecast all
the time. But now between tarifs on, tariff's off, no data,
policy shut down, policy making shut down. You know, I
(35:30):
think the market's just kind of the bomb. Market's kind
of just going and going. WHOA, we're pretty well priced.
Let's just sit here and wait for things to happen.
Speaker 4 (35:37):
Well, so then does that increase the chances Kathy, you
think of this having a policy mistep here.
Speaker 10 (35:43):
It's certainly a possibility.
Speaker 7 (35:45):
But I think my impression that I get from Paul
and from many of the other members is look, we're
back to that's navigating on a.
Speaker 10 (35:54):
Cloudy night thing.
Speaker 3 (35:55):
Right.
Speaker 10 (35:55):
We don't have information.
Speaker 7 (35:57):
The PAPA head isn't clear we've taken a couple of steps.
We're not restrictive anymore. So now we pause and we
wait and see what happens. Would go slow.
Speaker 3 (36:08):
I'm a sailer and I've navigated at night, and it
can be kind of not so great. You can hit
a rock, or you could hit something because you just
don't read something correctly, or things can be smooth sailing.
Speaker 4 (36:21):
So is there a chance though that I don't like?
Speaker 3 (36:24):
I think so many people are shocked at that the
economy is still growing and we're kind of doing all right,
and the market continues, the equity market to hit highes,
not necessarily what everybody was predicting a few months ago.
Speaker 4 (36:36):
But I just do wonder what's the thing we could
be missing?
Speaker 7 (36:41):
Well right now, financial conditions have been very supportive. Yeah,
and I think that's another reason the Fed can kind
of wait. They're saying, well, where there's no evidence that
the level of interest rates is holding back the economy,
people can borrow as much as like super housing Still
yeah maybe, but I mean, you know, even housing starting
(37:01):
to kind of recover because the prices are adjusting. So
you know, what is the thing that gets us? It's
never the thing you're looking at in the in your face, right,
it's the thing you don't know. I'm worried about the
build of them and that, you know, behind the scenes
and the shadow banking system.
Speaker 1 (37:21):
Private credit.
Speaker 7 (37:22):
Yeah, to some extent, we know that the quality isn't
great there and we know that some some firms are struggling.
Speaker 1 (37:30):
So how would how would a crisis like that in
private credit manifest?
Speaker 7 (37:36):
You know, I think that the issue is who's lending
to the private credit folks?
Speaker 1 (37:40):
Don't the banks lend to the private credit folks? Yeah,
so right, what's their exposure?
Speaker 7 (37:45):
Well, we don't know, you know it, because private credit
is private. You know, it's hard to know the quality
of the assets in any given day.
Speaker 4 (37:55):
Your face is really telling.
Speaker 3 (37:56):
Are you concerned that the exposure by the banks a
lot more than we know?
Speaker 7 (38:01):
I think the banks, you know, No, I think the
banks are the major banks are fine because against their will,
they've been forced to hold a lot of capital since
the Basel rules, and.
Speaker 10 (38:16):
So I think the banks are okay.
Speaker 7 (38:18):
But it does get to be sort of a cascade, right,
You know, one thing leads to another, leads to another,
and a lot of interwoven lending takes place, and there's
hidden leverage, and that's where you worry about things starting
to change, don't I don't have any part to.
Speaker 4 (38:35):
Be on the spot.
Speaker 10 (38:36):
I know, I don't have any particular like this guy's
going to blow up. We have a story to tell.
Speaker 7 (38:40):
I'm just these are the ways in the past we've
run into trouble.
Speaker 10 (38:44):
Somebody gets over leveraged as to prices get out.
Speaker 7 (38:47):
Of whack, people are over confident, and then things change, right.
Speaker 1 (38:52):
So it kind of brings us back to the FED
and how the FED works in an environment such as this,
in an environment where it's not getting much data. We
did hear from Lisa Cook this week. She said she
sees the risk of further labor market weaknesses greater than
the risk of inflation. We'll pick up Chicago dead Presidentcy Schools.
We said he was more nervous about inflation.
Speaker 10 (39:10):
Who's right, Yeah, we'll sign We'll find out.
Speaker 1 (39:14):
I'll find out when we reach our destination.
Speaker 7 (39:16):
Yeah, you know, I'm more in Goldsby's camp right now.
Although the labor market is clearly.
Speaker 10 (39:22):
Softened, some of that is supply side.
Speaker 7 (39:25):
Right until we got the ADP numbers today as a
positive number. Who's to saying that that number isn't consistent
with equilibrium in the in the labor.
Speaker 1 (39:34):
So were these numbers accurate now, because.
Speaker 7 (39:37):
Well, ADP is as accurate as we can we can
get right now.
Speaker 10 (39:41):
Yeah, but at the.
Speaker 1 (39:42):
Moment when we used to get government data, we used
to get the ADP numbers on you know, the day before,
a couple of days before, I don't even remember the world. Yeah,
we get earlier, and then we'd get the numbers from
the government and they would oftentimes not even be close
to one another.
Speaker 10 (39:58):
Yeah, and that's true.
Speaker 7 (40:00):
I think part of that is ADP is private sector only.
They didn't include government workers, so there's that discrepancy, and
you know, yeah, their surveys are different, but it's all
we've got to go on. So it looks like that
they're picking back up a little bit, and that's good news.
The ism figures of the manufactioning figures were okay today
(40:23):
with prices paid continuing decline.
Speaker 1 (40:25):
But then you have these best casual restaurants coming out
and saying, hey, we're not seeing the young consumers come
in and spend fifteen bucks on a lunch. Forgive me slopable,
But that's like, you know, what they're called now because
they're they're villain squeezed. Yeah, and that's the that's an indicator, that's.
Speaker 7 (40:42):
The Yeah, that's the issue of the economy's working well
for some and not well for others. And you know,
we've seen problems in the Karlan market, usually subprime borrowers
running into trouble.
Speaker 10 (40:54):
I am concerned about the agricultural.
Speaker 4 (40:56):
Sector great really hard hit buy tariffs.
Speaker 7 (40:59):
And you know it's not just farmers or agricultural businesses,
it's their lenders. We have banks that lend in that
sector as well. So these are pretty good sized parts
of the economy, but we've got them. The capex spend
wealthier consumers continuing to spend, and that in aggregate is
(41:22):
adding up to positive growth.
Speaker 4 (41:23):
When does I keep talking about this quote?
Speaker 3 (41:26):
I know, I don't know rich European or somebody who
just said, you know, I don't want to be a
rich person in a poor country.
Speaker 4 (41:33):
I don't want to be a billionaire in a poor country.
Speaker 3 (41:34):
When does the lower rung of the k I mean,
I think we're all shocked about the snap benefits and
how many Americans are getting assistance when it comes to
food in the world's richest country. So when does that
ignoring if you can, even the social issues, but the
economic costs too of that and so when does that
(41:56):
come home to roost?
Speaker 4 (41:58):
Are we seeing that with government debt?
Speaker 10 (42:00):
I don't know.
Speaker 7 (42:01):
Yeah, we've spent all you know, we've run up a
lot of government debt, different things, right on, many things
to sort of fill the gap, and that's been a positive.
But you know, it's always about the jobs, right, People
are okay until they lose a job. Yeah, So that's
why the unemployment rate is so crucial to watch.
Speaker 10 (42:22):
And of course we don't really have that.
Speaker 7 (42:24):
We have now the Chicago Fed putting out their estimate,
which is helpful, right, That last one is four point
four percent, you know, a little bit above the last
one we got from the BLS. But four point four
percent is not a high unemployment rate. Historically we used
to think full employment was around five. So you know
(42:46):
it's going to If there's going to be a problem,
it's going to because people.
Speaker 4 (42:49):
Lose their jobs.
Speaker 10 (42:50):
That's usually the way it happens.
Speaker 4 (42:51):
It's as simple as that, I mean, not so simple.
If you're losing your job, it's a big cost. Kathy,
so great to have this tonk of time to spend
with you.
Speaker 10 (42:59):
Thank you so much. Thank you.
Speaker 3 (43:00):
Kathy Jones, she Fixed Income Strategus over the Schwab Center
for Financial Research.
Speaker 4 (43:04):
Right here with us on Schwab Impact twenty twenty five.
Speaker 2 (43:07):
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(43:27):
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Speaker 2 (00:08):
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Speaker 3 (00:32):
All right, folks, if you really want to know what's
going on in the investment universe, you really want to
talk to the folks at Charles Schwab.
Speaker 4 (00:37):
It is a great place to start.
Speaker 3 (00:39):
First of all, it's one hundred and seventy five billion
dollar market cap company. Stock is up about twenty six
percent year to day following its recent earnings. At least
eleven analysts raise their price target on the stock after
Schwab's third quarter earnings beat thanks to a surge and
retail investing activity.
Speaker 4 (00:54):
And it's something we certainly want to dig into.
Speaker 5 (00:55):
Yeah, let's talk.
Speaker 1 (00:56):
About some your numbers behind the firm. Eleven trillion dollars
more than that in client assets, thirty eight million client
BROKERIDG accounts, two point two million bank accounts, five point
six million workplace plan participant accounts and over sixteen thousand
independent investment advisors, thousands of them are here at Schwab
Impact twenty twenty five and Denver.
Speaker 3 (01:12):
New Rick Wurster took over CEO in January this year
after previously serving as president for about three years at
the company, who was head of Schwab Asset Management Solutions
before that.
Speaker 4 (01:22):
So you have been at the company company for nearly
a decade, is that right?
Speaker 6 (01:25):
Yes, welcome, thank you, thank you, Thanks for having me
on and we're so thrilled that you made the trip
to be here in Denver at the conference.
Speaker 3 (01:32):
Well, we love coming here because we really do feel
like it's good to get out of I feel like
the coasts, and I feel like it's good to talk
to the people who are actually managing tons and tons
of money on a daily basis. Talk to us about
your first year and some of what's been coming at
you and how you and your team are making sense
of kind of the investment environment when things can change
often on.
Speaker 4 (01:50):
A day to day basis.
Speaker 6 (01:51):
Well, the most rewarding part of the first year has
been serving our forty six million clients, and it's been
a year in which the value of what we bring
to the table, great in person experiences, the leading digital app,
the strength of our bank and wealth capabilities, where all
of those things have been necessary to help clients navigate markets.
So that's what I take most from the first year.
(02:13):
It's just such an incredible opportunity to serve our clients
and the sixteen thousand advisors on our platform, many of
whom are here. It's real honor to be their partner
in business.
Speaker 1 (02:22):
Well, the market environment right now, we want to dive
right in there because really this week we've heard from
different Wall Street executives that an overdue collection of weighed
on the market this week, so reduced expectations at bed
rate cuts up, prolonged government shot down. Michael Berry added
to the negative tone with his disclosure of farish wagers
on talent here and Nvidia did buyers. Though, coming back
(02:43):
into the trade today, retail investors have been buying dips.
How do you see today's environment from sort of a
risk reward perspective.
Speaker 6 (02:50):
We try to focus our clients on the long term.
I think that owning securities and assets over long periods
of time will generally go up. It's really hard to
get the time of markets down because you have to
make two correct calls. First, you got to nail it
to get out at the right time, which is really hard.
In the strength of the kind of market we've had
(03:10):
in the momentum, we've had to get out at the
right times incredibly hard. And then you've got to be
able to get back in at the right time or
you miss out. I was down in Charlotte, North Carolina,
visiting with some clients and I heard from one client
who back in twenty sixteen didn't like the presidential administration
and so had sold out of stocks. And this was
back when we were having a pullback, and they said,
(03:31):
would now be a good time to get back in
the market, and they'd set out a huge amount of
gains over a short term point of view. We try
to have clients avoid that. Clients can stay in the
market and tolerate some volatility. We think over the long
run that gets rewarded because it is so hard to
call the markets both when to get out and when
to get back in.
Speaker 3 (03:48):
So as you walk around the floor and you're talking
to advisors, I mean, what are they talking about, you know,
in terms of timely advice that you're getting maybe from
the advice and what they are.
Speaker 4 (04:01):
Kind of hearing from their clients.
Speaker 6 (04:03):
I think one of the most pressing topics from investors
today is how to navigate concentrated positions. The S and
p's as its concentrated as it's.
Speaker 4 (04:12):
Ever been, right, the mag seven, the big tech.
Speaker 6 (04:15):
Yes, and it's created tremendous wealth for lots of retail investors,
and now they're wondering how to diversify their portfolio and
to do so in a way to minimize their tax burden.
And there's all kinds of strategies that they can work
with their advisor on to create a more diversiti portfolio
without having to pay a tremendous amount in capital gains.
Speaker 3 (04:33):
How hard is it, though, that when clients are like,
but why would I want to get out of Nvidia
when I've seen what they've been doing for how many years?
Speaker 6 (04:40):
Like?
Speaker 4 (04:40):
How tough is that?
Speaker 3 (04:41):
Because we constantly have conversations of people saying it's time
to broad naw back off the big tech, and then
it's the big tech with so much momentum.
Speaker 6 (04:49):
Well, you're absolutely right, and it's a really hard conversation
to have, and oftentimes we don't win it, but we
want to make sure the client is cognizantive of the
risk and the choice that they're making. Yeah, and to
be fair to those investors, they've been right by sticking
with their concentrated position for the most part, because the
names that have driven the market higher have been the
same ones here for a while, and so many people
(05:10):
have stuck with it, and they are sitting on more
gains and they might have anticipated.
Speaker 1 (05:14):
So let's go further into the retail trader, because they've
grown about twenty percent of the US equity market today.
I'm curious about sentiment trends, like how the structure of
this trend, how resilient are retail traders in an eventual downturn.
Speaker 7 (05:27):
Why.
Speaker 6 (05:27):
I think retail traders have been the ones leading the
market higher and have been the ones buying the dips.
And I think they were out actually in many ways,
out ahead of the institutional buyers. And so I think
you have a retail buyer that has strong hands and
will stick through the market. So, you know, we'll see
how it all plays out. But markets go up and
down and retail investors will inevitably, you know, make some
(05:49):
decisions in there that's best for them.
Speaker 1 (05:51):
People here retail investor, they think about the Robinhood for example,
your customer versus robin Hood's customer base. What are the
differences there.
Speaker 6 (05:58):
Well, our customer is an incredibly thoughtful group of retail investors. First,
they have access to what we think are the best
investing platforms in the industry. Number two, they have access
to the most robust research platform. We produce thirty five
hours a week of live education and training for investors,
so they're making the most informed decisions. We also don't
make them choose a channel, not only the leading digital app,
(06:21):
but they can walk in and talk to someone. They
can call our phone and get their question answered in
less than thirty seconds. We have one thousand professional traders
that wake up every morning ready to answer the phone
to help our clients trade. So I think we bring
everything we can to help our clients be successful, and
I think they make thoughtful decisions that are best for
their financial life.
Speaker 3 (06:41):
Now, you guys have talked about one third of your
clients are gen z, so talk to us about how
you continue to bring them in.
Speaker 4 (06:47):
How do you defend them keeping them in?
Speaker 3 (06:49):
What do you need to kind of do to serve
them and keep them on your platform.
Speaker 6 (06:53):
So one third of our new to firm clients are
gen Z, which is between the ages of thirteen and
twenty eight. We are having tremendous success.
Speaker 4 (07:01):
That was new customers, right.
Speaker 6 (07:02):
New customers, but we're having tremendous success with the young
investor because we see through their eyes and we put
all the weight and strength of our firm behind helping
them live their best financial life and make the smartest
financial decisions for them. We don't just say, hey, here's
a platform, go for it. Certainly many want to do
that and they can have at it, but we also
stand behind every one of them. If they want access
(07:23):
to our research, they want to talk to a professional,
and in terms of where we're finding them, it's interesting.
I went to our marketing department and I said, I
don't see enough about our advertising to young people, and
they said, Rick, it's because you're not cool and in
the places where young people.
Speaker 4 (07:38):
Go, but we're Does that hurt It hurts a little bit.
Speaker 6 (07:41):
We're the number one followed financial services company on YouTube.
We're all over TikTok, We're on all these different places
where young people are and they're attracted to the to
the breadth that the Schwab value proposition and how different
it is than other offers they see in the market.
Speaker 1 (07:54):
Well, speaking of what's out there in the market, wait,
we go ahead.
Speaker 4 (07:56):
Are you going to ask that crypto?
Speaker 1 (07:58):
No? Not yet?
Speaker 4 (07:59):
Do you want to wait? I want a way.
Speaker 1 (08:00):
I want to ask about prediction markets. Okay, because this
is something that I think gen Z wants and polymarket
is back in the US. It is certainly related to crypto, right, Caryl,
What role does Schwab have in prediction markets in the future.
Speaker 6 (08:14):
Well, I think prediction markets started out with financial services
companies with the best of intentions. They wanted their investors
to be able to bet on what was going to
happen with the inflation report, what's going to happen with
the job report, or what the Fed's going to do.
And they realized that there's not a lot of volume
and interest in those events in the general public, and
that there's already ways in financial markets to invest around
(08:36):
those activities. And then the election happened and the volume
in prediction markets skyrocketed, and these companies got a windfall
of money. And then they said to themselves, well, a
presidential election only comes one every four years. How do
we generate this level of interest on more of an
ongoing basis so we can see this wind fall more regularly.
(08:56):
And then they migrated from things that were tangentially related
to financial markets to pure sports gambling because every Saturday
and Sunday there's lots of activities that the nation cares about.
And now I think we're in a world where what's
driving all the volume and prediction markets is pure sports gambling.
Speaker 1 (09:12):
So yes or no for SAP getting involved.
Speaker 6 (09:15):
Look something we got to keep an eye on. You're
considering it, we're not actively considering. And the reason we're
not actively considering it is our mission is to make
our clients better off in their financial life. Five percent
of people and actually read this on Bloomberg very early
this morning, five percent of people that put money into
a gambling app take out more than they put in
in the first place. So gambling has proven to be
(09:37):
a negative contribution to your wealth. Now, it's fine if
you use it as entertainment and you're doing it in
a thoughtful way, But our mission is to make clients
better off in their financial life and enhance their wealth.
Speaker 3 (09:47):
Does that then say to you that it's not a
good idea in terms of the prediction markets and kind
of mixing them with traditional investing.
Speaker 6 (09:57):
From my viewpoint, we want to do everything we can
to put our clients in the best chance to grow
their wealth. And I think it's fine for people to gamble.
People are going to gamble, hopefully they do it in
a responsible way. The thing I worry most about is
the conflation between gambling and investing. If you're a young investor,
you've got ten thousand dollars in your account, you can
move it easily between investing in a stock that over
(10:19):
the long run is likely to go up over the
course of your life, or you can go bet on
the Eagles game that weekend. I think that is not
the greatest thing for the retail investor.
Speaker 3 (10:29):
Speaking of gambling and perhaps gamification, crypto we're just crypto
fit into all of this for you guys.
Speaker 6 (10:35):
Well, crypto has become an asset class that many people
have their full confidence and trust in and they view
it as a store of value. In our platform, we
have lots of people engaged in crypto today. In fact,
our clients own twenty percent of all the ETPs crypto
ETPs in our country. So our clients are big investors
(10:55):
in crypto, and for most people, buying the exchange traded
product is the right way to go because they're not
looking to transact in bitcoin, they're just looking to get
exposure to the price movements. Now, in addition to offer
an ETP, we will in time offer spot crypto. And
we're confident that we've got clients that are sitting at
digital native firms that have been long Schwab clients that
(11:17):
we no want to bring those assets back to Schwaman.
We're looking forward to being able to do.
Speaker 1 (11:20):
That this year, next year, next year, still first off
of twenty twenty six, that's where we're shooting.
Speaker 6 (11:26):
Focus and so far, so good. He soon you have
an idea, I'm not going to get that specific. I
get slapped here by someone.
Speaker 1 (11:35):
Well, last speaking of last year, you sat in this chair.
We were in San Francisco and we had a fun
conversation about crypto. You made headlines. You said this was
a year ago. I have not bought crypto now, and
I feel silly. You also said crypto investors have been
right in that you haven't been right, So update us.
Speaker 6 (11:52):
Have you bought crypto. Since then, I have not bought crypto.
I have nothing against crypto. I can certainly see the
case of it. If people believe it's a score of value,
it is scarce and it could go up. I think
the blockchain is something that is likely to play a
bigger part in markets, and therefore crypto can have some
value around blockchain. For me personally, my investments are an
(12:14):
assets that I consider to be productive assets or generating earnings,
are generating principle or interest, and that's where I focus
my investment place.
Speaker 1 (12:20):
It's interesting that you say that because when you said
that comment to us last year in the middle of November,
bitcoin was at and we were talking about bitcoin was
at one hundred thousand dollars. Right now it's at about
one hundred and four thousand dollars, So you look right
by not actually getting in.
Speaker 6 (12:35):
Right then possibly and bitcoin and crypto generally is going
to go up. It's going to go down. It's volatility
is something. It's standard deviation is something like fifty percent,
so we should expect wild swings. And for the right
group of folks, they want to own it, they believe
passionately in it, and they should have it. As part
of their portfolio. For some investors, it's what they want
to invest in.
Speaker 3 (12:54):
Private credit, private markets. How about that in terms of
you think the role that that will play.
Speaker 1 (13:00):
In our retirement portfolios, in our retirement accounts.
Speaker 4 (13:04):
How do you feel about that one?
Speaker 6 (13:06):
Well, you're a great private company. There's lots of great
private companies in our country that have found really well.
I think retail investors should be exposed to private opportunities.
We would like to bring it to market in three ways.
Number One, we access, We provide access to retail clients
to great alternatives managers and private equity, private credit, venture capital,
(13:26):
a lot of the names that you're familiar with. Second
thing is I think at the right time, we would
love to be able to offer passive exposure in a
fund like structure to private markets. Just like in public
markets today you can go buy the S and P
five hundred x fund and get broad representation of stocks.
You should be able to do that in private markets.
(13:47):
We'd love to play a role in that in the future.
And then third, like you can buy individual stocks if
you don't want either the active management or the passive
exposure to the broad market. I think that marketplace for
single security. Private companies should expand over time. And so
those are the three ways we envision the market expanding,
and we want to play a role in all three.
Speaker 4 (14:07):
Do we have to wrap?
Speaker 3 (14:09):
Can I get you twenty thirty seconds on elections and
changes and environments and I think the midterms and what
might happen next time at the White House. How does
that fit into your thinking in terms of long term
strategy for the company. Because we've had a vault a
year a little bit.
Speaker 6 (14:23):
Markets have thrived through all types of administrations and changes
and presidents and changes in the Senate and House and
all of that. And so our message to clients is
stay diversified and be invested, and stay invested in and
have a plan for your financial life. And if you
do those things, they'll navigate different ups and downs associated
with different administrations. And that's our council to clients.
Speaker 4 (14:45):
All right. So appreciate your time as always and all
time to be at your event.
Speaker 6 (14:49):
Always love seeing you here, and I appreciate the commitment
you both made to be here in Denver and be
a part of the Impact conference.
Speaker 1 (14:54):
Thank you well, Hopefully we'll see you next year and
more between.
Speaker 3 (14:56):
Now and then yeah, exactly, Rickhurster Presidency of Charles Schwab
of course, kicking off our coverage here at Schwab Impact
twenty twenty five.
Speaker 4 (15:03):
We are here in Denver, Brick again, thank you so much.
Speaker 5 (15:07):
Stay with us.
Speaker 1 (15:07):
More from Bloomberg Business Week Daily coming up after this.
Speaker 2 (15:14):
If you're listening to the Bloomberg Business Weekdaily podcast, catch
us live weekday afternoons from two to five pm Eastern.
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 3 (15:29):
I gotta say gains the S and P five hundred.
I just want to mention, since April, I have seen
the US benchmark de couple significantly from its moving averages.
The gap with the two hundred day gap gauge widened
to thirteen percent in October. It's a level that's usually
proved unsustainable in the past fifteen years. Meantime, the index
is now traded above it's fifty day moving average, of
the longest since twenty eleven.
Speaker 1 (15:49):
So so everything is awesome.
Speaker 4 (15:50):
Everything I don't know. We're going to ask what she's
shaking her head.
Speaker 1 (15:54):
Let's get into it with lyz Ane Saunders. She joins
us here at Swab Impact. She's chief investment strategist, Charles Schwab.
Everybody knows liz Ane Saunders. How are you?
Speaker 4 (16:03):
Yeah, I'm good.
Speaker 8 (16:04):
I'm so glad you're hearing again. Welcome to our cozy,
little event.
Speaker 5 (16:09):
Five people.
Speaker 1 (16:10):
It's not cozy and it's not little, but we are
happy to be here. It's a huge event. It was
huge last year in San Francisco. It was huge before
that in Philadelphia. Were you were shaking your head when
I was saying everything is awesome?
Speaker 9 (16:24):
Why, Well, it's it's a bit of a tale of
two markets.
Speaker 8 (16:27):
You've got cap weighted index returns and the lack of
any significant downside, particularly since the April eighth closing low.
Speaker 9 (16:35):
But here's an example.
Speaker 8 (16:37):
The average member within the SMP just since April eight
has had a sixteen percent now actually seventeen percent draw down.
The average member within the Nasdaq since April eighth, when
the nasdac's up fifty odd percent, has had a average
maximum draw down of thirty six.
Speaker 4 (16:53):
So the breath isn't there.
Speaker 8 (16:54):
The breath isn't there, but there's a lot of churn
and rotation going on under the surface that you don't
pick up. If you're only looking at the index level returns.
Speaker 3 (17:04):
So do you think the pullback that we saw, which
was I didn't want it really much yesterday, but do
you think it is are we starting to see signs
where investors are kind of questioning some of the valuations
that are out there, the AI spend and whether we're
getting the return on investment on it.
Speaker 8 (17:19):
Tell us you're thinking, I think the margin of era
has narrowed a bit. There's obviously sensitivity, whether it is
diminution in return on invested capital, whether you're seeing pressure
on margins. Obviously, the concern about the circularity of financing
and the fact that so far that's.
Speaker 4 (17:38):
A real thing.
Speaker 3 (17:39):
I mean, we are kind of blown away what feels
like it's all in the family.
Speaker 1 (17:43):
Yeah, here's five billion dollars, so you can buy five
billion dollars with the stuff from us, right.
Speaker 8 (17:47):
You guys, Bloomberg had this incredible visual that I think
made it on Michael Burry's post.
Speaker 9 (17:56):
Yes, but it's that is such a great visual.
Speaker 8 (17:59):
I've seen are simplistic ones of a you know, a
power strip with the plug plugged into the power strip.
Speaker 4 (18:06):
Yeah, but that's exactly true, right.
Speaker 8 (18:08):
And I think you know, the boom so far has
been financed out of cash flows.
Speaker 9 (18:12):
It's been largely equity financed.
Speaker 8 (18:13):
But now you've got as to just pick on the
MAG seven cohort.
Speaker 9 (18:19):
MAG seven free cash flow growth has.
Speaker 8 (18:21):
Gone from more than sixty percent year over year six
quarters ago to now two quarters in a row of
negative and so you're starting to see more deals financed
with that. That's not necessarily a bad thing. It's just
a different environment.
Speaker 3 (18:35):
But that I do want met in alpha that right,
didn't they just recently do it over subscribe like there's
lots of investor interests, but I do like, I don't know, Liz,
what we just have to keep an eye on it.
Speaker 8 (18:45):
Or I think you know, evaluation is a is a
tough one. I think valuations and I'm going to say
this generally, not just specific to AI stocks or Max seven,
it's not a market timing tool.
Speaker 9 (18:59):
It's more it's more a temperature gauge than it is
a timeing gauge. It's almost an indicator of sentiment.
Speaker 8 (19:05):
There are times where evaluations can get stretched, and they
can get more ridiculously stretched, and the market still has
a long runway ahead of it. So I think it
represents some of the angst that's coming into the narrative
right now, but it doesn't necessarily pretend impending doom. It's
just a it's a cost saver AI and it boosts margins.
(19:27):
So we had the early focus solely on the hyperscalers
and the chips, and then more recently it's gone into
the energy usage in the data centers.
Speaker 9 (19:37):
Now, I think where you're actually getting.
Speaker 8 (19:39):
Meat on the bones in terms of productivity statistics, in
terms of the beneficial to costs is the users of AI,
and I think that is likely to continue.
Speaker 1 (19:51):
But then does it create this destructive elopment in our
society as a result of those entry level jobs, those
white collar jobs, those blue caller jobs that end up
being completely eliminated. I mean, I know we're talking about
a future that none of us can see. But we
had an interesting conversation with David Weston last week and
he was basically like, how do we have this payoff
(20:14):
without the money savings from getting rid of all these employees.
Speaker 10 (20:17):
Basically, I think.
Speaker 8 (20:18):
That we're in a moment of creative destruction to quote Trumpeter. Yeah,
and that happens anytime we have a major innovation or
we've shifted our economy from being an ag economy to
industrial industrial to innovation, and that happens, but ultimately new
types of.
Speaker 9 (20:33):
Jobs are created.
Speaker 8 (20:34):
I actually think that companies that don't adopt AI are
going to have more job losses. I think what we
need to bring in is what AI doesn't yet provide
and maybe won't ever, you know, the seeds creativity and
culture and community and connection context. So I think there's
(20:56):
still I still think AI. Yes, it is certain kinds
of jobs, but I think it's replacing tasks more than
it's replacing full occupations. But I think workers have to
adapt to it and adopt it and bring it into
their lives or they will.
Speaker 9 (21:15):
Be left behind.
Speaker 7 (21:16):
You know.
Speaker 3 (21:16):
I pulled up my phone because someone came up to
us and Dwayne, who is a financial advisor, he's here
and he said, you guys did something on AI. You
did you did something at an event and we had
somebody who showed how to use AI. And he said,
after that, I went home and started playing which actually,
because you.
Speaker 1 (21:33):
Had a panel you did it at this conference last
year in San Francisco. No, it wasn't, No, I don't
think so, Okay, well it was something.
Speaker 4 (21:39):
But anyway, there's a lot of stuff there.
Speaker 3 (21:41):
But but what he said is he was able to
ask a questions.
Speaker 4 (21:46):
Do analytics so much faster? It was accurate?
Speaker 3 (21:50):
And he said it just took less time and I
actually produced better returns.
Speaker 4 (21:54):
For my clients, which was pretty cool stuff.
Speaker 9 (21:56):
It is a game changer.
Speaker 8 (21:57):
But the hallucination rates are still high enough. There are
low school digits, but high enough that I think it
was Gene Munster. He spoke right before me at a
recent conference, who who said, you know, lms are like
an intern. They do a lot of them work for you.
Speaker 9 (22:18):
But you kind of have to check their work.
Speaker 4 (22:20):
Got to keep an eye on them.
Speaker 3 (22:21):
Yeah, next six to twelve months, what do you think
the investment environment looks like.
Speaker 8 (22:25):
I think these bifurcations that have pervaded the economy, even
the inflation data and obviously the stock market, I don't see.
Speaker 9 (22:32):
A convergence to any significant degree.
Speaker 8 (22:35):
I think you're going to still see those bifurcations, whether
it's from a capex perspective, AI or non AI, asset
owners versus non asset owners, high income consumers versus low
income consumers, tariffed impact goods versus non tariff impact goods
from an inflation standpoint, and then obviously all those by fifreciations.
What I would watch for that may be interesting is
(22:55):
we could have a situation where if some of the
megacap names, some of the leadership names, continue to have
some sort of pullback phase, watch what the rest of
the market does. I don't think it's going to be
extreme as late twenty twenty two. But what was interesting
about that low in October of twenty twenty two relative
(23:16):
to the low prior to that in June of twenty
twenty two, is that when you had the real crush,
there was greater participation under the surface.
Speaker 9 (23:24):
That's what you want to look for.
Speaker 4 (23:25):
We will do that.
Speaker 3 (23:26):
Liz, Thank you so always great to see this as signer.
Do same here chief and bustmas strategist at Georles Schwab.
Speaker 1 (23:32):
Stay with us. More from Bloomberg Business Week Daily coming
up after this.
Speaker 2 (23:40):
This is the Bloomberg Business Week Daily Podcast. Listen live
each weekday starting at two pm Eastern on Apple car
Play and the Android Auto with the Bloomberg Business app.
You can also listen live on Amazon Alexa from our
flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
Speaker 4 (24:00):
Can't wait to get to our next guest. We're gonna
have a lot of fun with him. Omar Ayulaar.
Speaker 3 (24:02):
He's CEO and CIO of Schwab Asset Management. We're just
talking about just how much money is under the Schwab universe.
We're talking about one point six trillion dollars in assets
under management.
Speaker 1 (24:12):
Omar joins us here on site at Schwab Impact twenty
twenty five in Denver. Good to be with you again.
How are you.
Speaker 5 (24:17):
Doing very well?
Speaker 11 (24:18):
You know, can't you believe this is the thirty fifth
year we have done Impact and for me it's fourteen years.
Speaker 5 (24:24):
It's just unbelievable.
Speaker 1 (24:25):
Well, let's talk about this year because as we were
chatting ahead of this interview, you you made the joke
I wish we could just end the year right here,
because it's been a good year. It's been a good year,
but what does that portend for the next you know,
two months.
Speaker 11 (24:37):
It's been great for investors. It's been great for investors
to actually see that. I would probably say there.
Speaker 5 (24:42):
Were many points throughout the year where we all wish things.
Speaker 11 (24:46):
Were actually going to be different, and I don't think
anybody anticipated, you know, that we're going to be at
this stage, you know, so far into this year. You know,
from the beginning of the year, the uncertainty around administration
to liberation day to recovery to you know, the rise
of AI, to the economy, the consumer, all the way
to where we are now. It's such and such as
being a ride that I think investors have taken advantage of.
Speaker 3 (25:08):
You know, I was thinking about your background and I
just want to lay that what you've got twenty five
years of investment management experience and equity markets. You've seen
a lot of cycles, and I know, I think I
often reach out to you guys to ask you about this.
Speaker 4 (25:20):
What do you make of some of the recent stress.
Speaker 3 (25:22):
That we've seen omar, whether it was concerns about credit,
some of the regional bank issues. Again, we've heard different
stories about whether or not credit concerns or something that
might linger for a little bit.
Speaker 4 (25:33):
And then there's the private you know, credit market. So
how do you see it and do you see.
Speaker 3 (25:38):
It at all impacting kind of the tone of trade
and activity on your platforms?
Speaker 5 (25:41):
Yes, it is.
Speaker 11 (25:42):
It is interesting because yes, I have seen a lot
of tychles.
Speaker 4 (25:47):
I have too, So we're just like a good bottle.
Speaker 5 (25:49):
Of wine, you know, my gray hairs, you know, you know,
take a pride of it.
Speaker 11 (25:54):
But but yes, you know, it is interesting because you
know what we what I have seen historically, is you
actually go through the source of what is actually maybe
the reasons why something cracks. There will always be in
every single cycle, you know, areas of rest that are
what we call ideasyncratic.
Speaker 5 (26:10):
That's just che a fancy.
Speaker 11 (26:11):
Word, but you know what that means is that there
will always going to be things that will happen that
will make people nervous, and we just need to understand
whether it's systemic or is.
Speaker 5 (26:20):
Just isolated to a certain area.
Speaker 11 (26:21):
Interesting enough, you mentioned about you know, the particular the
credit market. You know, the credit market has been incredibly
resilient since two thousand and eight, and I think when
you look at the current even the high yield market,
you knows, not as junky as it used to be.
You know, I remember back in you know, two thousand
and five, two thousand and six or two thousand and
you know one in two thousand and two, those were
(26:43):
periods where you will really feel that there was a
lot of delinquencies, there was a lot of resk, there
was a lot of uncertainty around them. When you look
at it today, you know, the delinquencies are growing, right,
but not outside of the normal you will have in
this part of the cycle.
Speaker 4 (26:56):
Why do is think that's not happening well?
Speaker 5 (26:57):
And a lot of that has to do with corporate America.
Speaker 11 (27:00):
You know, their balance sheets are fairly fairly strong, and
the amount of leverage that you see in corporate America
has is basically to the lowest in many decades. So
what that actually means is that, yes, companies that are
taking excess leverage to steps risk and they're more.
Speaker 5 (27:13):
Risky, and the way they manage their business, you know,
they're clearly more at the risk end.
Speaker 11 (27:18):
But the majority of America it's actually pretty solid in
terms of how they.
Speaker 5 (27:22):
Manage their balance sheets.
Speaker 11 (27:23):
And in fact, a lot of the reasons we're talking about,
you know, in other forums about the reasons why tires
have not been having the impact as big as it
has been is because profit margins have been very, very
benign and have been not been affected as much.
Speaker 1 (27:38):
So does that mean that it's only a matter of
time before we actually see inflation as a result of
these tariffs. When these companies say we're not gonna we're
not going to pad the impact anymore with our with
our healthy profit margins, we're ready to pass these on.
Speaker 5 (27:52):
Well, we're already seeing some of that. We're ready seeing
two things.
Speaker 11 (27:55):
One is we're ready seeing companies that are they're not
going to have a choice, but actually passed through those
increasing process to the consumers. You know, we have seen
those companies that have the biggest you know, opportunities and
the biggest wide is margins. They're they're already good, but
there are ones that are getting a squeeze and a squeeze. We'
already see some of that already in the early parts
of this earning season. The second part of that, we're ob
(28:17):
serving its consumption, you know, consumers and the demand destruction
starting to happen. You're starting to see a little bit
in terms of like you know, airlines and the tickets
and you know, you see that actually on my way
here for the first time, the plane was not full.
That was unique because you know, for the entire year,
you know, you always go there and it's actually big,
(28:38):
big chunk of it. So you can see a little
bit of that consumption starting to just get affected by it.
Speaker 1 (28:42):
This happened to us last month on our way back
from Los Angeles. The person at the gate said, this
is crazy. It's been full pretty much until now. The
flight was empty heading back.
Speaker 2 (28:52):
Yeah.
Speaker 1 (28:52):
Again, it's an anecdote, yea by hearing it from airlines.
Speaker 3 (28:55):
Yet, But the airlines have been so smart about keeping
those planes packed right, and so to me it seems
like a clear indicator. I know, I said, you've seen
a lot of cycles, but I think about your background
Lehman Brothers, Merrill Lynch. These are firms that are no
longer around, you know, post GFC, the Great Financial Crisis.
So I guess I always try to think, you know,
what are we missing in an environment where so many
(29:15):
people are like, it's okay, it's okay, it's okay, And
I'm like, what are the possible risks do you think
for investors in this environment?
Speaker 11 (29:23):
Well, we have seen and actually we saw this in
the last six weeks. If you look at the performance
of those companies that did not do not have positive
earnings negative earnings companies in small and midcalf sectors, they
outperform by almost twenty percent in a short period of time,
so what.
Speaker 5 (29:41):
Is called the junk round.
Speaker 11 (29:42):
And in many cases the concern is that this component
of excess goes into areas that goes like that, and
that volatility is not healthy. You know volatility when you
have something that is extreme valuations. They're still generating earnings,
but you know that there are multiple is way ahead.
Speaker 5 (29:58):
It is normal and is healthy. And in fact, we
I tend.
Speaker 11 (30:00):
To, you know, do these to clients and advisors here
to say, hey, look some polatility is healthy.
Speaker 5 (30:05):
You know, you don't want to straight up market.
Speaker 11 (30:08):
I think the exposure to momentum, it's one that I
have seen in many cycles. It blows up, you know,
it goes very quickly up and it just blows up
very quickly.
Speaker 5 (30:17):
It doesn't have to be all the cancer.
Speaker 11 (30:18):
So the concern we have now is that there is
too much momentum in the market or still and it
needs to be you know, somehow corrected.
Speaker 4 (30:27):
Is it the AI trade momentum?
Speaker 5 (30:29):
It is it is beyond just the AI trade, you know,
the AI trade.
Speaker 11 (30:32):
You know, if you look at it, you know a
lot of that is being represented in CAPE. So the
capital expenditure from Maoria company, it's translated into AI, and
those companies are generating flows, not not all AI companies.
Speaker 4 (30:43):
Now they're debt market, they're.
Speaker 5 (30:45):
Tapping debt markets.
Speaker 11 (30:46):
And at the same time, you're starting to see that
there's companies that are spending in capital that they're not
seeing their returns. They're starting to just be questioned about
their capital expenditures and there are rois.
Speaker 5 (30:57):
So I think some of that it's healthy, It is
the right thing.
Speaker 11 (31:00):
Not all AI is going to be the same, and
I think to me that is a good thing for
that consolidation.
Speaker 5 (31:06):
A little of those pieces will actually come to prey.
Speaker 3 (31:08):
But if there's a blow up, is it the AI
thing or is it something else?
Speaker 4 (31:11):
Maybe In terms of risk.
Speaker 11 (31:13):
Well, you know, I think it's just generally market because
the concentration, the concentration risk.
Speaker 5 (31:17):
Is the one that worries me the most.
Speaker 11 (31:19):
You know, if you think about until this moment, you know,
only thirty percent of the.
Speaker 5 (31:23):
Companies in the S and P five hundred have outperformed
the index.
Speaker 11 (31:27):
The rest have underperformed, right, So you can actually just
feel how that translates into, you know, significant amount of
rebalancing that needs to happen for this to continue.
Speaker 5 (31:36):
And again going back to where you said, this is
repeated in the past.
Speaker 11 (31:40):
You've seen it was energy at some point, it was
you know, consumer discretionary, at some other point, it was.
Speaker 5 (31:45):
TechEd back in the two thousand.
Speaker 11 (31:46):
So this time, even though it's not the same as
we're back there because companies are generating free cash flow still,
you know, you feel that there's going to be some
rebalancing that needs to happen.
Speaker 3 (31:55):
Would we have to talk to you to get more
time with you. I'm just going to put out there
we want to talk to more to your people. We can
get more time with you. Omar, Thank you, always, always appreciated.
Speaker 10 (32:03):
Omar A.
Speaker 6 (32:03):
Goolaar.
Speaker 4 (32:04):
He's CEO and CIO of schwap Asset Management.
Speaker 1 (32:07):
Stay with us more from Bloomberg Business Week Daily coming
up after this.
Speaker 2 (32:15):
You're listening to the Bloomberg Business Week Daily Podcast. Catch
us live weekday afternoons from two to five pm Eastern
Listen on Apple CarPlay and Android Auto with the Bloomberg
Business app, or watch us live on YouTube.
Speaker 1 (32:30):
Yesterday on the plane, yeah, I'm writing my interview with
Kathy Jones, and I'm curiously Oh, I got some stuff
to talk about because there's a flight to quality happening
right now.
Speaker 4 (32:40):
I like that you did.
Speaker 1 (32:40):
And then today I know it's basically like, oh, erase
the whole intro. I know, the flights of quality that
we saw yesterday exactly isn't happening.
Speaker 10 (32:48):
I don't know.
Speaker 4 (32:49):
Keath decent maybe data today I guess.
Speaker 1 (32:52):
That's what it was. But does that change the narrative?
I thought yesterday change the narrative.
Speaker 4 (32:56):
It's a long term narrative.
Speaker 1 (32:57):
Let's see what Kathy Jones has to say. She's Chief
Fixed incomes to your just at the Schwab Center for
Financial Research.
Speaker 3 (33:01):
He joined us here on site at he has to
figure out the longer term narrative.
Speaker 1 (33:06):
I thought, I thought yesterday was kind of this turning
point with this flight to quality equity sell off. There
was this chorus of Wall Street executives who were like, Okay,
not so fast.
Speaker 5 (33:17):
What did you think?
Speaker 7 (33:18):
Yeah, it certainly felt like the stock market was getting
a little you know, yippie.
Speaker 1 (33:23):
That's what the President said earlier this year. Yeah, but
he's about the bond market. He said, yeah, yeah, as
you know.
Speaker 10 (33:30):
Now it's their m at the stock market.
Speaker 7 (33:32):
And so I thought, you know, we had a decent
bid in the bond market, but it wasn't huge. You know,
in the times past, if you had a really good
sell off in the stock market from elevated levels, you'd
get a big jump.
Speaker 10 (33:46):
And we didn't get a big jump.
Speaker 1 (33:47):
Why didn't you know?
Speaker 7 (33:48):
I don't I'm not sure that the bond market has
a lot of room for longer term yields to go
down absent a very big change in the economic outline.
Speaker 4 (34:00):
So there's a floor, you see.
Speaker 1 (34:01):
Yeah, he's a big change in the economic outlook. If
the Supreme Court says, sorry IPA tariffs, yeah, those are
those are those are not legal?
Speaker 7 (34:10):
Yeah, I don't think that has a big impact on
the box hundred billion dollars that could go back to
companies and consumers that we have.
Speaker 1 (34:17):
Yes, I do trillion.
Speaker 7 (34:18):
In terms of the bond market, I'm growing and is
a fairly small drop of the bucket. And you know,
then how how fast does that actually get back to
somebody's pocketbook for spending. But you know, in general, the
economy seems to be chugging along great. Okay, it's not
great for everybody, but in aggregate it's good enough. Inflation
(34:39):
is stuck at three percent and kind of edging higher,
where where do we go from here? If you've got
inflation at three percent, maybe moving up at a four
percent ten year yield, you know, that's that's equilibrium right now.
Speaker 10 (34:53):
We need something to.
Speaker 4 (34:54):
Change, and you do you think it's going to change.
Speaker 7 (34:58):
I think in twenty twenty six we'll probably get enough
slow in growth and some easing and inflation that will
seields come down.
Speaker 10 (35:07):
But I think the market was just way.
Speaker 7 (35:09):
Over its skis expecting the Fed to cut over and
over again. And it is very difficult to forecast all
the time. But now between tarifs on, tariff's off, no data,
policy shut down, policy making shut down. You know, I
(35:30):
think the market's just kind of the bomb. Market's kind
of just going and going. WHOA, we're pretty well priced.
Let's just sit here and wait for things to happen.
Speaker 4 (35:37):
Well, so then does that increase the chances Kathy, you
think of this having a policy mistep here.
Speaker 10 (35:43):
It's certainly a possibility.
Speaker 7 (35:45):
But I think my impression that I get from Paul
and from many of the other members is look, we're
back to that's navigating on a.
Speaker 10 (35:54):
Cloudy night thing.
Speaker 3 (35:55):
Right.
Speaker 10 (35:55):
We don't have information.
Speaker 7 (35:57):
The PAPA head isn't clear we've taken a couple of steps.
We're not restrictive anymore. So now we pause and we
wait and see what happens. Would go slow.
Speaker 3 (36:08):
I'm a sailer and I've navigated at night, and it
can be kind of not so great. You can hit
a rock, or you could hit something because you just
don't read something correctly, or things can be smooth sailing.
Speaker 4 (36:21):
So is there a chance though that I don't like?
Speaker 3 (36:24):
I think so many people are shocked at that the
economy is still growing and we're kind of doing all right,
and the market continues, the equity market to hit highes,
not necessarily what everybody was predicting a few months ago.
Speaker 4 (36:36):
But I just do wonder what's the thing we could
be missing?
Speaker 7 (36:41):
Well right now, financial conditions have been very supportive. Yeah,
and I think that's another reason the Fed can kind
of wait. They're saying, well, where there's no evidence that
the level of interest rates is holding back the economy,
people can borrow as much as like super housing Still
yeah maybe, but I mean, you know, even housing starting
(37:01):
to kind of recover because the prices are adjusting. So
you know, what is the thing that gets us? It's
never the thing you're looking at in the in your face, right,
it's the thing you don't know. I'm worried about the
build of them and that, you know, behind the scenes
and the shadow banking system.
Speaker 1 (37:21):
Private credit.
Speaker 7 (37:22):
Yeah, to some extent, we know that the quality isn't
great there and we know that some some firms are struggling.
Speaker 1 (37:30):
So how would how would a crisis like that in
private credit manifest?
Speaker 7 (37:36):
You know, I think that the issue is who's lending
to the private credit folks?
Speaker 1 (37:40):
Don't the banks lend to the private credit folks? Yeah,
so right, what's their exposure?
Speaker 7 (37:45):
Well, we don't know, you know it, because private credit
is private. You know, it's hard to know the quality
of the assets in any given day.
Speaker 4 (37:55):
Your face is really telling.
Speaker 3 (37:56):
Are you concerned that the exposure by the banks a
lot more than we know?
Speaker 7 (38:01):
I think the banks, you know, No, I think the
banks are the major banks are fine because against their will,
they've been forced to hold a lot of capital since
the Basel rules, and.
Speaker 10 (38:16):
So I think the banks are okay.
Speaker 7 (38:18):
But it does get to be sort of a cascade, right,
You know, one thing leads to another, leads to another,
and a lot of interwoven lending takes place, and there's
hidden leverage, and that's where you worry about things starting
to change, don't I don't have any part to.
Speaker 4 (38:35):
Be on the spot.
Speaker 10 (38:36):
I know, I don't have any particular like this guy's
going to blow up. We have a story to tell.
Speaker 7 (38:40):
I'm just these are the ways in the past we've
run into trouble.
Speaker 10 (38:44):
Somebody gets over leveraged as to prices get out.
Speaker 7 (38:47):
Of whack, people are over confident, and then things change, right.
Speaker 1 (38:52):
So it kind of brings us back to the FED
and how the FED works in an environment such as this,
in an environment where it's not getting much data. We
did hear from Lisa Cook this week. She said she
sees the risk of further labor market weaknesses greater than
the risk of inflation. We'll pick up Chicago dead Presidentcy Schools.
We said he was more nervous about inflation.
Speaker 10 (39:10):
Who's right, Yeah, we'll sign We'll find out.
Speaker 1 (39:14):
I'll find out when we reach our destination.
Speaker 7 (39:16):
Yeah, you know, I'm more in Goldsby's camp right now.
Although the labor market is clearly.
Speaker 10 (39:22):
Softened, some of that is supply side.
Speaker 7 (39:25):
Right until we got the ADP numbers today as a
positive number. Who's to saying that that number isn't consistent
with equilibrium in the in the labor.
Speaker 1 (39:34):
So were these numbers accurate now, because.
Speaker 7 (39:37):
Well, ADP is as accurate as we can we can
get right now.
Speaker 10 (39:41):
Yeah, but at the.
Speaker 1 (39:42):
Moment when we used to get government data, we used
to get the ADP numbers on you know, the day before,
a couple of days before, I don't even remember the world. Yeah,
we get earlier, and then we'd get the numbers from
the government and they would oftentimes not even be close
to one another.
Speaker 10 (39:58):
Yeah, and that's true.
Speaker 7 (40:00):
I think part of that is ADP is private sector only.
They didn't include government workers, so there's that discrepancy, and
you know, yeah, their surveys are different, but it's all
we've got to go on. So it looks like that
they're picking back up a little bit, and that's good news.
The ism figures of the manufactioning figures were okay today
(40:23):
with prices paid continuing decline.
Speaker 1 (40:25):
But then you have these best casual restaurants coming out
and saying, hey, we're not seeing the young consumers come
in and spend fifteen bucks on a lunch. Forgive me slopable,
But that's like, you know, what they're called now because
they're they're villain squeezed. Yeah, and that's the that's an indicator, that's.
Speaker 7 (40:42):
The Yeah, that's the issue of the economy's working well
for some and not well for others. And you know,
we've seen problems in the Karlan market, usually subprime borrowers
running into trouble.
Speaker 10 (40:54):
I am concerned about the agricultural.
Speaker 4 (40:56):
Sector great really hard hit buy tariffs.
Speaker 7 (40:59):
And you know it's not just farmers or agricultural businesses,
it's their lenders. We have banks that lend in that
sector as well. So these are pretty good sized parts
of the economy, but we've got them. The capex spend
wealthier consumers continuing to spend, and that in aggregate is
(41:22):
adding up to positive growth.
Speaker 4 (41:23):
When does I keep talking about this quote?
Speaker 3 (41:26):
I know, I don't know rich European or somebody who
just said, you know, I don't want to be a
rich person in a poor country.
Speaker 4 (41:33):
I don't want to be a billionaire in a poor country.
Speaker 3 (41:34):
When does the lower rung of the k I mean,
I think we're all shocked about the snap benefits and
how many Americans are getting assistance when it comes to
food in the world's richest country. So when does that
ignoring if you can, even the social issues, but the
economic costs too of that and so when does that
(41:56):
come home to roost?
Speaker 4 (41:58):
Are we seeing that with government debt?
Speaker 10 (42:00):
I don't know.
Speaker 7 (42:01):
Yeah, we've spent all you know, we've run up a
lot of government debt, different things, right on, many things
to sort of fill the gap, and that's been a positive.
But you know, it's always about the jobs, right, People
are okay until they lose a job. Yeah, So that's
why the unemployment rate is so crucial to watch.
Speaker 10 (42:22):
And of course we don't really have that.
Speaker 7 (42:24):
We have now the Chicago Fed putting out their estimate,
which is helpful, right, That last one is four point
four percent, you know, a little bit above the last
one we got from the BLS. But four point four
percent is not a high unemployment rate. Historically we used
to think full employment was around five. So you know
(42:46):
it's going to If there's going to be a problem,
it's going to because people.
Speaker 4 (42:49):
Lose their jobs.
Speaker 10 (42:50):
That's usually the way it happens.
Speaker 4 (42:51):
It's as simple as that, I mean, not so simple.
If you're losing your job, it's a big cost. Kathy,
so great to have this tonk of time to spend
with you.
Speaker 10 (42:59):
Thank you so much. Thank you.
Speaker 3 (43:00):
Kathy Jones, she Fixed Income Strategus over the Schwab Center
for Financial Research.
Speaker 4 (43:04):
Right here with us on Schwab Impact twenty twenty five.
Speaker 2 (43:07):
This is the Bloomberg Business Week Daily podcast, available on Apple, Spotify,
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