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I'm looking here at the intellectual combine over at Schwab and I got SMP tech sectors, forward price to sales ratio pushing up against this all time Hi. Thank you Kevin Gordon for that wisdom. Joining us now, Lizzie Saunders is a privilege of working with Kevin Gordon. Lizzy, and you do the best charts on you and you're in Timmer, do the best charts on Twitter today. What's your most important chart that you're putting out for schwab right now?
Oh boy, that's a good question. There's so many. I think it's labor market data. I think it's claims, continuing claims, what we see in the monthly jobs report. I think that's the needle mover in terms of Fed policy.
Correlate targets earnings this morning and very great disappointment on revenue. Can you coordinate that we correlate that, I should say, with the labor market.
Well, you know I don't cover individual stocks, including covering target, but you know you have the earnings story this quarter at the bottom line level has been better than expected. The beat rate, the percent by which companies have beaten, but you've got overall revenue growth down around in line with where inflation is, so it really has exposed the companies that actually do have pricing power and don't have pricing power. In addition, revenue beat rate has been below average.
The percent by which companies have beaten on the top line has been below average. So I think this is increasingly, yet again a sign of this bifurcation happening, whether it's between nominal and real, high end consumer and low end consumer services versus the good side, discretionary versus non discretionary, and I think there's a reason why the consumer discretionary sectors been performing poorly, as we're now seeing more than just cracks in the facade of the consumer.
So, Lizane, I guess one of the key issues here are the earnings that we have seen and again we're going to another big one after the close tonight with Nvidia. Have they been strong enough to support this big move up and equity valuations that we've seen since October.
Well, you've got about I think the blended growth rate right now is eleven percent. That's inclusive of the companies that have yet to report, and that is well better than what was expected at the beginning of reporting season. That's getting there, but I think earnings do need to continue to surprise on the upside because last year's strengthened the market was all multiple expansion because you didn't have much in the way of earnings growth. So I think
the earnings do have to play catch up. Obviously, the report out today is incredibly important, not just psychologically, which we know it's going to be important psychologically, but if you look at the overall tech sector, the earnings growth rate drops from about twenty four percent or so twenty three to twenty four percent down to less than eleven excluding what is expected for Nvidia, So it is it is obviously the poster child, but that has been the
support for the tech sector, which is the overall support for a higher valuation level. If you look around the world, one of the mistakes that investors make is they do valuation comps country to country, region or region without taking into consideration what are the underlying drivers of the local economy. And when you have more of an information tech based economy, that is support of all LSEQL of a higher valuation backdrop. The last thing I'd say is inflation as a backdrop
for valuations is important, maybe not coinstantly. The sweet spot in terms of historical valuations being supported at a higher level has been in and around that two percent inflation zone. We're obviously not there yet, even if we're directionally heading in the right way.
Liziane, what are some of the the sectors that screen well for you and your team here?
Yeah, so we relaunched Schwab sector views at the beginning of the year after a two year hiatus for a whole variety of reasons, and we haven't had any change in terms of the sectors on which we have outperform ratings since the beginning of the year. So it's financials, materials, and energy. Obviously a very cyclical bias in terms of
where our outperforms are. The two underperforms are reates, maybe no surprise given the problems in commercial real estate, and then as we already touched on consumert discretionary, the rest are in that neutral category.
Well is how do you manage a bull market across the kitchen table selling main go away that didn't work out? There was a great chart. I don't know if Young Gordon added at Schwab, but you know, it's like we're getting back to you know, two thousand and six, ownership of equities sixty some percent, whatever the number is, it's really great. We're all in on this market. How do you manage the emotion of a bull market on a kitchen table over a beverage of.
Pace, You know, Tom, that's an interesting question because you know, household exposure to equities is a behavioral measure of sentiment, for lack of a better word. But you've got attitudinal measures of sentiment. And one of the interesting things that has occurred in the last couple of years really in this sort of post COVID bear market cycle, is that you get much bigger swings in the attitudinal measures of
sentiment than you do in the behavioral measures. So if you look at just AAII American association of individual investors, you can see pretty big moves in a very short period of time, up in percentage of bowls, up in percentage of bears depending on the new year term wiggles in the market. But you haven't seen much movement in
that invested exposure piece of it. So I think that there is some complacency out there as measured by the behavioral measures, but those attitudinal measures are swinging much more quickly in this environment.
What do you see at Schwab What is cash doing well?
I think for a lot of investors, cash is earning income, so you've got income and fixed income. Again. That's why I push back on this notion that the six trillion dollars in money market funds is just sitting there ripe to jump into the equity market. I think that's probably fairly sticky, and I think it's great comfort, particularly for more conservative or older investors that had to stretch for yield and move out the risk spectrum, to not have
to do that. You've got implications for within the equity side, especially areas like dividend stocks that will increase in attractiveness depending on what yields are doing. But I think a lot of that that sort of cash money is fairly sticky because it's earning a nice yield.
At this point, Lizzen, it was great having your assistant Kevin Gordon on, but you know he failed in one.
Oh he's more than that. But yeah, I love that interview. Well done.
We were coming out of it and I said to him casually, I said, let's play some Nickelback. He did know who Nickelback was. The young Lawd did not know who Nickelback was.
I taught him, well, he knows who led Zeppelin is, so you.
Better know that if it was to catch a paycheck. Lizzie Saunders working with the great Kevin Gordon and Schwab. Thank you so much. I can't say enough