Bloomberg Audio Studios, podcasts, radio news. We've been bouncing around on the equity side of things. It feels like there's no real conviction in the trade. But I want to see what Lazanne Saunders has to say about that.
Yeah, very pleased to have her back with us. She is chief investment strategist at Charles Shaw and she joins us from Florida. Lasanne, How are you.
I'm good. How are you too?
Yeah, we're doing pretty well. We're doing pretty well. We're not in sunny Florida, but it is kind of jealous. It's still sunny up here.
Come on down.
Yeah, We're happy, happy, especially in the winter. We'd love to. I want to talk a little bit about some of the stuff you sent our producer Paul ahead of time, because I do find it interesting given that you argue that the pullback that we've seen just in the last couple of weeks, last two days nowith standing, has kind of masked some underlying declines that we've seen take place in some of the major indices. Talk a little bit about what you're looking at.
Sure, So there has been this focus just on the recent weakness and the five percent or so pullback that we saw in the S and P and the NASA, as if that was the only underlying pressure. But the reality was, even when the market, the S and P, the NASDAK were at our near all time highs, you had had a lot of churn under the surface. As of for instance, using the Nasdaq as admittedly the most extreme example, again you haven't had more than a five percent draw down from a year to date high at
the index level. However, the average member within the Nasdaq has had a maximum draw down on average of thirty two percent, So that's bare market level declines. It just happened through a process of rotation and churn. That's not a bad way to correct. Sentiment access is correct concentration access. I think probably most investors would choose a rotational correction as opposed to the bottom falling out all at once.
But that's the real story. Is you have to peel kind of a layer of the onion back beyond just the index level changes.
Is that largely some of the NASDAK names or the broader market overall.
Was that it's mostly the Nasdaq. In terms of that kind of underlying weakness, I think it's about twenty five percent maximum drawdown on average for members within the Russell two thousand, so clearly it's the smaller cap. It's only about twelve percent for the S and P five hundred, So there's definitely been weakness heading down the cap spectrum into where you have the most interest rates sensitivity, the nonprofitable zombie companies. So that's that's where the pressure has been most acute.
So what does that say to you that there's opportunity for room to the upside or how do you see? And I feel like you can't think about that without thinking about, Okay, what ultimately the FED may or may not do, as the expectations around rate cuts have come down dramatically.
Yeah, so I think yields have been more in the driver's seat for what the market has done versus just expectations around FED policy. It's kind of a parlor game that everybody's playing. Now, you know, when will they start how many cuts? And they're data dependent, so the data is going to dictate that. But in the meantime, the big move down in yields started the to October last year to the earlier in the year low of three
point eight percent. That was a huge tailwind for the overall market for small caps, and then the move up initially really hurt small caps because that's where there's greater interest sensitivity, but then more recently some of the larger names. I think the leadership that has been dominant in the past month or so will probably restart after we go through this choppy phase, and that's in areas like financials
and energy and materials. That doesn't mean there aren't still opportunities and everybody's favorite sectors like tech and communications services, but I think that cyclical leadership has got legs.
Is that financials, energy, materials, I'm trying to think how to read that. Is that because there's economic activity? Is that because for financials a higher rate environment can mean good things? Is energy because of geopolitics?
Yeah, I mean they are individual reasons. You've got obviously geopolitics and oil. With energy, you've got oversold conditions that developed obviously in financial with last year in the MIDDI banking crisis, materials as a play on commodities. But broadly I think it does reflect at least some sign of improving global growth, and you know, really the kind of growth trio of sectors, the tech, communication services, consumer discretionary
that house the Magnificent seven. They've almost become this era's defensive type names. And I think given the stability and strengthen the economy, that we finally saw some money shift to those more classic cyclicals. And again we think that that has some legs.
You know, it's interesting. I was looking at some of the I think you have some of the data. Was a German confidence or consumer confidence number that came in stronger. Maybe today, I feel like there's been some news coming in slowly out of Europe that maybe things you know, are not as bad. And I do wonder, at Leasanne, if we are setting ourselves up, maybe even China, could they possibly could it be this year that finally we
see some significant momentum. Certainly the numbers seem to suggest it, despite the skeptics, But could we We've been kind of ruling all of this out and saying the US is the best game in town. But if we get more global growth, as the IMF has suggested, you know, could that be really a boom if you will, certainly to the global equity story.
So it's hard to envision a boom condo scenario, especially maybe that's China given. Yeah, But you know, Carol, the way you asked the question initially, I think you use some important words, which is less bad. We have to remember that, you know, when it comes to data, economic data, earnings data, whatever it is, and market behavior. It's human nature to think of economic data, earnings data in good versus bad, strong versus weak, but better or worse tends
to matter more than good or bad. And it's just those inflection points when things stop getting worse and start getting better that can be the launch point for sector changes in terms of where leadership is better market performance. You don't necessarily need to see a significant acceleration, just that inflection from bad to less bad to maybe getting better.
So we're all eyes on meta in just a few minutes, Lizen, and I'm wondering about what this could tell us about the greater economy if it's any sort of bell weather to you. Given the vassive, vast majority, I can say all of the revenue comes from advertising at this point, a lot of small business advertising as well, and how you're thinking about big tech earnings as we sort of get into the swing of earning season right now.
So, as you know, I don't cover individual stocks, not meta any of them. I think the most important aspect to the earnings, particularly this week some of the big high profile names, is not just about okay, did they beat the consensus estimate for the quarter, but the differential between top line growth, bottom line growth, maintenance of profit margins, and importantly the outlook, because back to the better or
worse matters more than good or bad. You know, there's been so much enthusiasm for maybe now a subset of the magnificence set, and the data is likely to continue to be really good, but we're starting to appropriately ask the question has the expectation bar, either figuratively or literally gotten set too high? And that I think was part of the reason for some of this volatility. So that's what I'm paying attention to this weekend next.
So great to check in with you again, Lezambi. Well, Lizanne Sander's chief investment strategist at Charles Schwab, joining us from Naples, Florida,