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Les Anne so Ander's chief investment strategist at Charles Schwab Lazan, thanks so much for joining us here. We're kind of getting into the teeth of the earnings here. We had the banks, we're having some tech companies today, we've got some energy companies reporting. It seems like earnings are pretty solid. Is it enough to support this market?
Liz Well, it already has done a lot to support the market, and that's because you not only have seen the progression since we've been in reporting season of rising estimates for the quarter, you've had big upward revisions to calendar year twenty twenty six numbers. I guess the only rub to that is that the boost in expectations is very concentrated. So you've gotten a boost for calendar year twenty six from the energy sector, but tech is really
where the story has been. And I guess the only problem, if you had to nitpick this smoove higher, is that there's con centration in terms of that tech earnings increase, largely driven by Broadcom, Micron and then the SEMIS. If you're going to go at the industry level, so a little bit of narrowness.
Do you want to see more breath though in the rally in the market rallies that we've been seeing, Lazan, Yeah.
So you know, in a normal course of a corrective phase, you go through the correction, then you have a relief rally. If that doesn't have a big breath thrust, you often retest and then move higher again. We didn't quite get the breath thrust. So SMP sitting at an all time high right now, but only seven percent of the index members are at fifty two week highs, and it's only fifteen percent of the index that's even just at a
four week high. So we're again we're developing a little bit of that concentration problem, and it would be a better backdrop for the market medium to longer term if we had some better breath not yet, Lezan.
I guess late last year, maybe October November, we started to see a little bit of a rotation in the market out of some of those multiple growth tech names into some more value maybe smaller MidCap as well. Was that just a short term trade or does that have some legs? Do you think?
I think rotation has some legs, And we've been seeing that in earnest going back to last summer, the recent the latter part of the rally that we have recently had was concentrated actually back in some of those you know, fan favorites from the twenty twenty one periods, so the meme stocks and heavily shorted stocks, retail favorites, quantum computing. That's given back a little bit more recently. But I think these rapid fire rotations is the name of the game.
It helps to explain why even though at the index level, the S and P five hundred did not have a full ten percent correction from a maximum drawdown standpoint, the average member within the SMP has had a draw down of twenty percent. That is bear market level. It's just happened through churn and rotation, not all at once.
Lazane, you like GARP as an investment strategy, growth at a reasonable price. What's a reasonable price right now? And what do you like because you look at some of these tech companies, Google, Alphabet's Google. You know now at pe of twenty nine? Is that fair? Is that rich? How do you view it?
Well? I look at the market from an overall valuation perspective, not necessarily at the individual stock level, because that's not what I do. Multiples actually have improved since last summer when there was really really heightened concern about lofty multiples, and that's because even though we've had this rotation and churn, forward earnings estimates have continued to rise. So you got the boost to the denominator and the pequation helping bring
multiples down to a degree. But we're big believers in factor based investing, more so even than second based investing, or at least applying factors as an overlay to more monolithic sector work. And the factors that I think make sense here are Garpian nature. You want to look for forward earnings growth, you want to look for stability and or growth in profit margins, but you want to be
mindful of not paying exorbitant valuation. So that brings sort of the Garb wrapper in when talking about the factors of focus for us.
Lauzanne amid all the geopolitical issues that investors are dealing with and the earnings this week, we also had a FED meeting this week, and we have a little bit of a changing of the guard here. I'd love to just get your thoughts on kind of what's happening at the Federal Reserve and how that's impacting, if at all your outlook here.
Yeah, so I personally had a little bit of a lean toward Powell deciding to stay on. So not a massive surprise there, I think, And you know, he well stated that until the investigations are truly sort of dead and buried, he felt he should stay on. What's also interesting about what what happened with the transition is a lot of people don't realize that Worsh isn't coming in to replace Powell as governor. Worsh replaces Stephen Myron as governor, and then we assume gets voted by the FMC into
the chair position. With Powell staying on, it means that the administration or President Trump cannot appoint another governor who might be either he could have reappointed tried to reappoint Stephen Myron, he would have had to go through another confirmation hearing. But what I think is going to be most interesting is what does Kevin Worsh change. Does he do fewer meetings? Does he not have press conferences after
every meeting? Are there fewer speakers out there among FED members that could have some market impact because we're so used to getting just a regular stream of information via press conferences, via what I've often joked being the Federal Open Mouth Committee. I don't say that in a derogatory way. There's just lots of voices out there.
Hey, Lizen, wanted to get your thoughts on some of the ECO data we got this week. You say GDP, the headline GDP number of two percent for the first quarter doesn't really tell the whole story.
Why, Well, so you got a jump. You actually had a big jump in both imports and exports. The net of those two things actually was a slight drag on GDP. But what was interesting is that the reason why exports jumped had a lot to do with the war and energy, but the reason why imports jump had more to do with a little bit less terrif uncertainty as it related to the Supreme Court ruling. You did see a boost
to CAPEX. There's still a bit of a bias in the CAPEC story to AI, but we're starting to see a little bit of a broadening out and then not much strength on the consumer side. And I have a longer term view that I think I think we could see the consumption part of the economy, which is now sixty nine percent of GDP, actually slowly trend down. And what will catch up a little bit, not in direct percentage relative terms, is the business investment spending side of things.
I think that's going to be a longer term driver of the economy than it's been in the past.
Zan, thank you so much for joining us. We always appreciate gating a few minutes of your time. Lysiane Sanders, chief investment strategist at Charles Schwap.
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