YIELDS HAVE STABILIZED. AND BY THE WAY, ON THAT NOTE, COMING UP, WE WILL ASK FORMER FED CHAIR RICHARD CLARA TO WHEN THE FED WILL CUT RATES, IF AT ALL THIS YEAR. THIS DOES TAKE US HOW TO BEST MOVE IN THIS MARKET. LET'S ASK OUR CHIEF INVESTMENT STRATEGIST WITH CHARLES SCHWAB. GOOD TO SEE YOU BACK AGAIN. WE HAD THIS NICE MOVE OVER THE LAST COUPLE OF DAYS. DO YOU BELIEVE IN IT? HOW YOU FEELING ABOUT THIS MARKET? >> THE MARKET GOT A LITTLE BIT OVERSOLD ESPECIALLY IN AREAS THAT HAD TAKEN A DRUBBING AND TECHNOLOGY SECTOR DROPPED TO ONLY 10% OF STOCKS TRADING ABOVE A TWO DAY MOVING AVERAGE. I DO THINK THAT ENTICED SOME BUYERS, NOT TO MENTION THE EARNINGS FROM SOME OF THE MEGA CAP NAMES THIS WEEK, MAYBE ELEVATING SOME INTEREST ON THE BUY SIDE. I THINK IT ALSO DIDN'T ELIMINATE THE FROTH, BUT EASE SOME OF THE FROTH, WHICH HAD BEEN A CONCERN. SO, I THINK WE PROBABLY REVERT BACK TO THE KIND OF LEADERSHIP WE WERE SEEING BEFORE, BUT YOU ARE GOING TO GET THESE MOVES ON A DAY-TO-DAY BASIS OR SOME OF THE LACQUERED GET A BID. >> YOU ARE SUGGESTING THAT MEGA CAP IS GOING TO ONCE AGAIN TAKE THE LEAD AND STAY THERE? THIS IDEA OF ROTATING OR BROADENING IS NOT BELIEVABLE? >> NO, NO. I AM SAYING THIS YEAR'S WINNERS, UNTIL RECENTLY, WILL PROBABLY GO BACK INTO THE LEADERSHIP POSITION, MEANING ENERGY, AND MATERIALS, AND FINANCIALS, TO SOME DEGREE. I THINK WE GET THESE RELIEF RALLIES IN AREAS THAT WERE LAST YEAR'S DARLINGS, BUT I BELIEVE MORE IN THE PERSISTENCE ON THE TRADITIONAL CYCLICALS, BORROWING MORE SIGNIFICANT WEAKNESS THAT SHOWS UP IN THE ECONOMY. >> SO, YOU ARE ON THE SAME TRAIN AS JAMIE DIAMOND, WHO WAS SPEAKING TODAY AT THE ECONOMIC CLUB NOT TOO FAR FROM HERE, WHERE HE SAID THE ECONOMIC BOOM IS "UNBELIEVABLE." EVEN IF WE GO INTO A RECESSION, THE CONSUMER IS STILL IN GOOD SHAPE. SO, YOU ARE PLAYING FOR THE STRONG AND CONTINUING TO BE STRONG ECONOMY? >> SO, I ACTUALLY THINK THAT WE MAY START TO SEE A LITTLE BIT OF PRESSURE ON THE CONSUMPTION SIDE OF THE ECONOMY. BUT, I THINK THE MORE TRADITIONAL, CYCLICAL AREAS REPRESENTED BY GIVEN WHAT IS GOING ON IN COMMODITIES, MATERIALS, AGAIN, FINANCIALS, I THINK THERE WAS A VALUE TRADE THAT KICKED IN THERE, AND ENERGY, MAYBE FOR OBVIOUS REASONS. SO, THOSE ARE -- SCOTT, AS YOU KNOW, WE RELAUNCHED SCHWAB SECTOR VIEWS EARLIER THIS YEAR AFTER A TWO YEAR HIATUS AFTER WE FOCUSED ON FACTORS, NOW WE FOCUS ON BOTH. FORTUNATELY, THE THREE OUTPERFORMED RATINGS SINCE WE HAVE BEEN LAUNCHED IS ENERGY, FINANCE, AND MATERIALS, AND WE HAVE NOT CHANGED. WE THINK AT LEAST NEAR TERM, THAT IS WHERE YOU WILL CONTINUE TO SEE PERFORMANCE LEADERSHIP. >> HOW DO YOU THINK THIS BULL MARKET SINCE THE OCTOBER BOTTOM IS BASED ON RATE CUTS? AND HOW MUCH DO YOU THINK IT WAS BASED ON THE FACT THAT THE ECONOMY IS JUST A STRONG, AND THAT MATTERS MORE THAN ANYTHING ELSE AT THE END OF THE DAY? >> I THINK IT IS MORE THE LATTER THAN THE FORMER, BUT I ALSO THINK THE LOUT RALLY WAS DRIVEN BY WHAT HAPPENED WITH TREASURY YIELDS, RATHER THAN THE PARLIAMENT GAME OF EXPECTATIONS AROUND, WHEN WILL THE FED CUT, AND BY HOW MUCH? THE MOVE FROM 5% OF THE 10 YEAR YIELD IN OCTOBER DOWN TO 3.8% WAS JUST A POWERFUL TAILWIND FOR THE OVERALL MARKET AND THAT IS WHY YOU SAW A SIGNIFICANT MOVE BY SMALL CAPS DURING THAT DOWNTURN AND YIELD. THE RECENT TURN BACK UP IN YIELDS INITIALLY WAS FOR THE DETRIMENT DOWN THE CAP SPECTRUM FOR ZOMBIE TYPE COMPANIES AND MORE RECENTLY STARTED TO HIT MORE OF THE LARGER CAP COMPANIES, BUT I THINK THE RESILIENCE IN THE MARKET HAS TO DO WITH THE RESILIENCE IN THE ECONOMY. THERE IS A LOT OF CHURN UNDER THE SURFACE. THE AVERAGE NASDAQ MEMBER HAS HAD A 32% CLAW DOWN THIS YEAR, SO YOU DON'T REALLY GET A FULL PICTURE OF WHAT IS GOING ON IN THE MARKET IF YOU ONLY LOOK AT INDEX CHANGES. THE REAL STORY HAS BEEN UNDER THE SURFACE. >> IF WE GET NO CUTS THIS YEAR -- OR MAYBE ONE, BUT IT IS PUSHED OFF WAY OFF UNTIL THE END OF THE YEAR -- ARE YOU STILL COMFORTABLE WITH THIS MARKET AS LONG AS THE ECONOMY REASON -- REMAINS RESILIENT? >> IF THE ECONOMY REMAINS RESILIENT, WE DON'T GET A SIGNIFICANT TURN UP IN INFLATION, I THINK THE MARKET IS OKAY. A SIGNIFICANT TURN UP IN INFLATION, OR DETERIORATION IN THE GEOPOLITICAL ENVIRONMENT, $100 OIL, THAT STARTS TO HAVE DEEPER EFFECTS INTO OTHER INFLATION. AND THE FED IS STYMIED IN A SLOWING ECONOMIC ENVIRONMENT BY NOT BEING ABLE TO CUT TO COMBAT THE SLOWING ECONOMY BECAUSE OF INFLATION, THAT WOULD NOT BE A GREAT SCENARIO. IF SO, IT WOULD BE THE WHY BEHIND WHAT THE FED DOES. WHAT AMAZES ME, AGAIN, THIS PARLOR GAME OF, WHEN WILL THEY START? HOW MANY CUTS? THERE IS VERY LITTLE THAT I HEAR BEHIND THAT ANALYSIS. I THINK THE FED IS GOING TO START -- FILL IN THE BLANK -- JULY, SEPTEMBER. THE REASON WHY IS, HERE IS WHAT I ANTICIPATE IN TERMS OF MONTHLY READINGS ON CORE PCE, OR CORE PCE SERVICES, HOUSING, HERE IS HOW THE BASE AFFECTS WORK. SO, THIS
