Beyond The Mag 7 – Positioning For Earnings Peaking and Yields Rising – Liz Ann Sonders

**Liz Ann Sonders** (0:00)
But I think the combination of the NVIDIAs, the Microns, the Broadcoms of the world, they do continue to bring forth numbers that we're looking for, the CapEx spend numbers that we're looking for. It's hard to extrapolate that with an infinity sign. And at some point, there's going to be some sort of miss. And at some point, it becomes math, where the base effects work to the disadvantage of the growth rate in earnings. I'm not sure we're at some eminent inflection point here, but I think we have to start thinking about the point at which growth starts to slow, particularly earnings growth, and how that feeds into the bigger picture backdrop. So caveat, I have known Kevin Warsh for 23 years. He has always been seen as on the more hawkish end of the spectrum. I don't worry about some give up of those inflation-fighting credentials. My best guess is that they are going to pike rates 25 basis points. Ultimately, I think what matters in terms of the equity market is the speed of any Fed moves. Are they going to take the escalator or are they going to take the elevator?
Is historically has been a key determinant of how well the market does.

**Wilfred Frost** (1:22)
Welcome to The Master Investor Podcast with me, Wilfred Frost, where we celebrate and learn from the success of the greatest investors, business leaders and politicians in the world, giving you, our listeners, the edge. The Master Investor Podcast is sponsored by LSEG, Interactive Brokers, The World Gold Council and BNY Investments. Please do remember the views expressed in this podcast are for general information purposes only. Nothing in the podcast constitutes a financial promotion, investment advice or a personal recommendation. More on that in the show notes.
My guest today is the Chief Investment Strategist of Charles Schwab, Liz Ann Sonders. Schwab is a firm with, wait for it, $13.4 trillion in client assets, making her the key source of investment advice to their 40 million customers. They are a Goliath. Liz Ann is joining us for the second time on the podcast, and I am delighted to welcome her back. Liz Ann, great to see you. Thanks for joining us again.

**Liz Ann Sonders** (2:30)
Thanks so much for having me. I love our conversations, Wilf. And sorry for the very generic background, but I'm in a hotel ballroom doing this.

**Wilfred Frost** (2:40)
Life on the road. We appreciate your time even more, given how clearly busy you must be. But it's great to see maybe a slightly bland background, but the very green positive top you're wearing.

**Liz Ann Sonders** (2:52)
Yeah, might as well bring a little color in that way.

**Wilfred Frost** (2:55)
Yeah, well, also, our branding for the podcast is green as well on purpose because we all want markets to go higher. So there we go.

**Liz Ann Sonders** (3:01)
We all want markets to go in that direction.

**Wilfred Frost** (3:03)
Sadly, though, if we're looking at the futures of recording this, obviously, Tuesday morning, your time, Eastern time, Tuesday afternoon, UK time, markets futures are down today. And I think the story we've got to start with, if it's all right, is what's causing that, which is the yield picture. And clearly, been on the rise globally. It's not just a US phenomenon, but at the moment, we're looking at the US 10-year up to 4.8%, the 30-year up to close to 5.3%.
And I guess my first question on that, that they are big levels relative to anything in the last month or anything in the last decade, really, whichever time frame we look at it. Are you surprised that those levels, highs of yields haven't actually hit stocks more so far?

**Liz Ann Sonders** (3:51)
Well, no, I'm not terribly surprised. And if you just peel even one layer of the onion back, you do see that whether you go back to the late June recent low in yields, or you just look out over the past month or so where the increase in concern about the Treasury Secretary Bessent's plan to double the buybacks of the long end and what that says about confidence, really what we've done is continue a move toward normalization in yields. Whether you track it against nominal GDP growth, whether you track it against the level of inflation, yields are not only just about where they should be, but arguably relative to nominal GDP growth, probably have more upside.
You can look under the hood of the stock market and see the more interest-sensitive segments like utilities, like real estate. Those sectors have had the worst performance over that two-month period of time since we've seen the move up. So you do see an impact. It's just sub the index level. It's just been the latest reason why you've seen rotation, in this case more recently into energy for obvious reasons, into financials. So it doesn't surprise me. And frankly, this normalization is not a bad thing. I think we're better off in a more normal yield environment relative to the financial repression that came in the aftermath of the pandemic and the aftermath of the global financial crisis when you had the 10-year bottom at half of 1%.