Investors need to watch out for momentum risks, says Schwab's Aguilar

Our next guest still believing in the soft landing this year expects the Fed to cut one to two times. Joining us now is Schwab Asset Management CEO and CIO, Omar Aguilar. You’re you’re not changing your view unnecessarily on the on the Fed path from here given some of these numbers. Good morning. No, we we we’re still you know thinking that this is this, we knew this was going to be a bumpy ride. We knew that every single data point was going to obviously reflect different effects that we have in terms of the activities that we have seen by central banks. But in general just how the economic date, you know takes the real economy takes those measures and reflect on the data. So you know we have seen these expectations switching and yes, we still believe that there is more chances of a rate cut. It is going to take a little longer to get there most likely towards the end of the year, but that’s probably what we think the market will do and what the Fed seems to be looking at and what have you learned so far from earnings season as far as the resilience of the earnings we’re seeing. Well this is all you know the combination of both the macroeconomic and the micro, you know seems to be be reflecting in a fairly you know robust earnings systems thus far with you know half of the SP500 you know seems to be going into the right direction. We see this dispersion. You know companies that obviously have deployed their tag, their cash that they have, you know the right set setup for earnings growth seem to be doing what they have to be doing with you know 80% of those beating their bottom lines and they continue to do well. Now they the, the forcation we see this in earnings season is that there are those that continue to you know grow their business and have earnings growth because they’re being doing CapEx and because they continue to do well and the other ones that have done well because they have reduced expenses. And those two companies the market seems to be you know taking it in different ways. Those that reduce expenses seems to be less of a potential lift. Those that continue to grow their, their bottom line and they continue to grow and be profitable, they continue to do much better. Omar, you know the general take after the data this morning is that the consumer is clearly comfortable spending because they feel the labor market is strong. They don’t feel that bad with the savings rate going to the low 3 because the labor market is strong. What is on the line for NFPA week from today? Well you know I think that’s that is precisely the the data that we saw today and even actually yesterday when you dig a little deeper about you know the GDP numbers that we saw that yes, we’re definitely surprising you know with the lower growth that all of us expected. But when you actually started to see about the real consumption data, when you actually started to see you know how the the real wealth effect for the majority of investors and majority of consumers is still pretty solid. You know, and I would probably say that what it was surprising to me and what it continues to be is that we we see that defrecation, defrecation between goods and services. But even in the data this morning it suggested that there’s still solid consumption of goods even though at a slower pace, but it’s still at a pretty healthy for the economy. So you’re right, consumers continue to be very solid in terms of spending. Their real, you know, incomes continue to be positive given the wage growth that we have seen and therefore what we expect for the next, you know few data points. Is that continuing where inflation trends will continue to go down, but the real, you know, our consumption will stay strong mostly because inflation is coming down. So given all of that, Omar, what do you do? What are you advising your clients to do right now and how much, how much risk should they be willing to stomach? Well, I would probably say a big part of what we have discussed throughout with our clients and with our investors is continues to be the fact that they need to watch for momentum risks. In other words, we have seen this incredible you know run in momentum which includes the Magnificent 7, includes the the setup of the mega caps running and continue to drive a lot of the performance in markets. We see these clear changes in bond yields that we have seen especially because of the inversion of the yield curve as well as the short end and because of where we are in monetary policy. And this is the right time to find rebalancing opportunities where you can reduce exposure to those momentum factors that you have as well as starts to thinking about how to redeploy potential cash into other parts. For example, we continue to emphasize and starting to look at intermediate bonds. We continue to to emphasize trying to diversify the equity exposures towards small caps towards more of the cyclical sectors like financials, like energy, like materials. So that there is going to be a little more balance in, in people’s portfolios as we continue to see this trend. Because you know, as we go into the second-half of the year, the leadership seems to be going and changing, you know, fairly quickly.