Tremendous churn and weakness under the surface of the Nasdaq: Charles Schwab's Liz Ann Sonders

Charles Schwab Chief investment strategist Lizanne Saunders joins us now. Lizanne, are you feeling more optimistic at this point given what we've seen from stocks, especially big tech leading the market? Well, it's the especially part, Tara, that's the operative word there. Yeah, the market has done quite well, but most stocks have not. And the the kind of divergent and concentration could go for a while. It's, it's difficult to try to pinpoint at what point you start to get convergence there. But on pretty much every breadth metric, including the fact that you're in low double digit kind of percent of stocks that have outperformed the S&P within the S&P over the last one month, three month, one year. You've got in the case of the NASDAQ, the average member maximum drawdown here to date is 37%. So there's a tremendous amount of churn and weakness and rotation going on under the surface. You just wouldn't pick that up if you're only focused on the index level gains, which are increasingly driven by a smaller and smaller handful of stocks. That's a risk. Timing when it comes to fruition is the tricky part. I was going to say. So what do you, what do you do with that risk? Do you just have more exposure to the tech stocks or do you reduce exposure overall to the market if you think that that is problematic? Well, it depends on what your exposure is, whether you're a passive investor in index funds, whether you're an active investor. I think you need to do your best to make sure you don't develop the kind of concentration problem within your own portfolio that exists now in the indexes. And one way to do that is portfolio based or volatility based rebalancing. A lot of investors will do the rebalancing based on the camera on the calendar and that's certainly how a lot of institutions do at mutual funds rebalance during the last week of each calendar quarter. But I think there's an opportunity to do portfolio based rebalancing where you're given the opportunity to trim back where gains have been most significant. And the beautiful thing about rebalancing is it it's a it's a trim in an ad. It is not A at All in all out try to you know, pinpoint the top in terms of a cell which nobody can do that. So I think it's that discipline of rebalancing that can help keep concentration for becoming a big problem within your own portfolio. Lizanne, curious about your thoughts about consumer in light of retail sales tomorrow, but also this wire story today that the White House is going to be fairly aggressive in managing gas prices and the SPR as we work our way into the summer. That's on top of what wholesale prices are already implying about retail averages in a historically at a time where we actually get prices rising, not falling. Well, it's hard to say what government policy can do to truly affect energy prices, whether it's on the oil front or the gasoline front. I think it can work on the margin. It's really just demand fundamentals that drive that. And more broadly on the consumer, you have started to see cracks in the consumer. In fact, even prior to some of the concerns that have recently developed and what has triggered a lot of the big retailers to announce pretty aggressive cost cutting has been the fact that the differential between nominal consumer spending and real consumer spending is significant such that you know we had $19 trillion of consumer spending in aggregate in calendar year 2023. That's an all time high. But in real terms or in per capita terms, meaning a population adjusted terms, that's actually been flattish since about late 2021. So this sort of booming consumer story, if you dig under the surface a little bit, there's a big difference between nominal and real, non population adjusted and population adjusted. So it wouldn't surprise me to us to not see a beat on the upside. You know, I'm not trying to forecast individual economic numbers as they come in, but it wouldn't surprise me to see some weakening in consumption data more broadly. And it's borne out by a broader consumer metric like consumer sentiment, which which really had a lot of weakness in particular within the categories of consumer sentiment.

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