With strong economic winds blowing, Amy and her guest Liz Ann Sonders, our Chief Investment Strategist at Schwab, bust some myths about these economic forces, clarify what’s going on in right now with equity markets, and discuss what to watch for that could signal some stability.
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(1222-2MAR)
Amy Reback
Well, welcome back to all of our listeners and subscribers. Thanks for joining us today on another journey for Equity Unpacked®. I'm your host, Amy Reback, and I'm the stock plan services rep from the team here at Charles Schwab. And, since you're tuning in, I'll wager that you already know we have a very special guest along for our ride today. And the team and I have been really looking forward to this particular trip for quite a while, especially since there's been a whole lot of turbulence since our last episode and since the last time you came and had a listen at Equity Unpacked.
There's been inflation, interest rate increases, big swings in the financial markets, war in Ukraine, rumblings of military action in Asia, and, you know, some elections. And all of these things are tied to the economy in one way or the other. There's a push and a pull that happens. And in the equity comp world, we know that employers are experiencing a lot of attrition as their stock values start to sink or have sunk, or sometimes are diving into territory that their executive leaders haven't seen in over a decade. And for the vast majority of the workforce, in particular the big tech sectors, we're seeing a significant depreciation in the value of their awards.
What brings all of this together? What influences all of this? It's the global economy. It's big. It's complicated. And understanding it, at least for me, I know, it feels like trying to capture lightning in a jar. So we have asked the one and only Liz Ann Sonders, the chief investment strategist here at Charles Schwab, to help us unpack what's going on in the economy and how the equity markets would react. Liz Ann, welcome to the show. We're so thrilled to have you.
Liz Ann Sonders
Hi, Amy. Thanks for having me. I'm looking forward to our conversation.
Amy Reback
Me too, me too. We all are. For our listeners, Liz Ann is the number one fan favorite the entire time that I've been at Schwab. She's been here 23 years—I've been here almost 19—and packed rooms, sold out every single time. And you've also probably seen one of her regular appearances on any one of the big, nationally-syndicated cable finance network shows. I'm sure she just blew them off today to come here and be at Equity Unpacked, of course. There's just too many to list, but we're going to try really hard to add Equity Unpacked to that roster today. All right, maybe not nationally syndicated, but a girl can dream, Liz Ann. A girl can dream. Really, really honored to have you with us today.
Let's level-set on our itinerary, so you know where we're headed. And I'd really like to do three things today. Let's do a little myth-busting about financial markets and economy. That's always fun. And, Liz Ann, we really want to hear from you on the overall economic forces: What is going on? If anyone can explain that in plain language, it's you. We also appreciate that. And then, lastly, we'd love to hear what you're watching for—what do you look for in the economy as those economic winds are blowing around and changing in a way that, to you, signals some kind of positive sustainability where the equity markets are likely to follow? Those are the things that I'd like to do today, as long as we have you. How does that sound?
Liz Ann Sonders
That sounds great.
Amy Reback
So myth-busting. For our listeners, anybody that's watching TV, especially if you watch any political talk shows, it's really easy to forget that the economy and the equity markets are not the same thing. Liz Ann, I have to ask you, because I have seen this happen before: How often do you get questions in your presentations where it's very obvious that they're mixing up the two?
Liz Ann Sonders
No question about it. I think there is that connectivity that people feel is maybe more tight than what is actually the case. Of course, they're related. But, in general, the stock market leads the economy. And that, I think, is what, in particular, throws investors off because we're so attuned to economic data points because they impact all of us. What goes on a day-to-day basis in the stock market may not impact everybody. Let's hope people aren't obsessing and looking at statements every single day. But, in general, we're very attuned to economic data.
But there's two problems. One, the stock market tends to lead the economy. It anticipates, in particular, turning point. The stock market almost takes a Wayne Gretzky approach, skates where the puck is going, not where the puck has been. And it's human nature for us to look at economic data and think in good versus bad or strong versus weak terms. But the stock market keys off more subtle changes. And that's why I always say better or worse matters more than good or bad. Sometimes data can be abysmal, but the fact that it has stopped getting worse and just starting to get better, that's often a trigger for the stock market well in advance of when the data, whatever it is, looks good or strong. And I think that's what trips a lot of investors up in trying to make that connection.
Amy Reback
It's a push and pull, and it's like the Pacific and the Atlantic meet at some point. Where does it start, where does it end. It's one or the other. It's hard to understand that, and nobody can see everything, right? We rely on you for that because you've got all that going on. The other thing that sometimes we hear is, and I'm sure you've heard this as well, is people cling to something, the jobs report, GDP. And they have an idea, for some reason, they've heard it at some point, that this is the thing that you look for. This is an indicator. And that means everything's going to be great. And then pack it away, don't listen again, and then they're surprised, a few weeks later, when something else happens. There's, number one, no guarantees. No crying in the stock market. And no guarantees that something's going to happen. When people ask you those questions about different types of indicators, what would you advise them to look at?
Liz Ann Sonders
I guess the first question back that I would have is whether you're looking for what are the most relevant indicators tied to the economy or the stock market? I'll throw that back at you, Amy, to see whether you have a bias in terms of how you want me to answer that question. Are we talking more about what are the most important variables to look at when trying to judge where we are in the economic cycle or where we are in the market cycle?
Amy Reback
I would say, first, market cycle, since we're talking about the market really leading the economy. And then also let's remind everyone that there's forward-looking and there's backward-looking indicators.
Liz Ann Sonders
That's a great way to set up what's the second part, which is the economy. Hopefully, I won't forget what just popped into my head. But, from a stock market perspective, I look at every variety of indicator and data point that covers monetary conditions, what the Fed is doing—that's a big driver of what the stock market does. Obviously, things like valuation and earnings. You've got technical indicators, overbought, oversold, breadth-type indicators. But I'd say probably the most impactful set of indicators, especially at extremes, at major inflection points, are, for the most part, sentiment related.
I was a huge fan of and had the great pleasure of meeting the late great Sir John Templeton of Templeton Funds, and probably the most famous thing he ever said, and it's quoted all the time, was, "Bull markets are born in despair. They grow on skepticism. They mature an optimism. And they die on euphoria." And I think there's nothing that details a full market cycle better than those four little sentences. And what you notice in there is there's no term in that phrase that has anything to do with the Fed funds rate or corporate earnings or valuation or technical conditions. It is all about sentiment. And I think, at extremes, that ultimately is what defines turning points. And it acts very much as a contrarian indicator.
I remember I worked for the late, great—sadly, another late, great—Marty Zweig in my first 13 years in the business, and he was an avid sentiment watcher. He invented the put/call ratio. He coined the phrase, "Don't fight the Fed." And a reporter asked him once, and this was before the days of the internet, a reporter asked him once, "If you had to throw out all the indicators you look at to judge where we are in a market cycle, and you had to pick only one," of the hundreds he tracked, he was always quick to answer, "Time and Newsweek cover stories—being jointly bulls on the cover or jointly bears on the cover." And this was, again, before the internet. This was when magazines were magazines. They were only in print. They were sold at the newsstand. And pretty much anytime, within a week, they each had some version of a bull on the cover. That was usually at or near the end of the bull market, and vice versa for bears.
That's just kind of a fun way to think about the power of extremes in sentiment as a contrarian indicator. Without a doubt, that's what I focus on, and I keep emphasizing at extremes. It doesn't mean sentiment's going to drive the market every wiggle. But when you get to an extreme of despair, that's usually the sign of a bottoming process, again, and vice versa. On the economy, your tee-up to the question had a very important component in how you worded it, which is some indicators are lagging in nature, some indicators are leading in nature. I think the first thing to do, if you're studying the economy, is understand which buckets an indicator falls into. Is it a leading indicator? Does it tend to move first? I call them heads-up indicators. Does it move in advance of the broad economy? A measure like GDP?
Then there's coincident indicators. They're moving right at the same pace as how we measure the economy. And then lagging indicators. The perfect example of a lagging indicator is the unemployment rate—not only a lagging indicator, one of the most lagging indicators of all. And that's another thing that trips people up, is they think, "I'm not gonna feel better," if you're at high unemployment rate, "until unemployment rate comes all the way back down.” You've probably missed most of the bull market, and vice versa, if you say, "Why should I be worried? The unemployment rate is low. Nothing to see here in terms of the recession or the market." Well, it tells you nothing about looking forward. It tells you everything about what already happened.
Amy Reback
You know what we would look for, when I was in the branches, on indicators? And this was widely known. We would look for when you started seeing those commercials for options, like trading options and making a million dollars, trading options. And then we would see this flood of people coming into the branch with emergency option applications. And we'd look at each other and say, "Market top. It's time to get out. Market top." And it was almost like clockwork every single time. A lot of it really is based on sentiment. That's so interesting.
And then this is a funny one. It may seem like this is a ridiculous myth to bust, but I hear this all the time, and I'm sure you've heard this quite often over the years. And I hear it more when the market is down or there's a lot of uncertainty. And that is, “Somebody has all the answers, and they're just not sharing. You guys know this. You guys know everything. Why don't you just tell us?" As if. If anybody has all the answers, number one, Liz Ann, it's you. But if that were the case, there would be no need to have financial markets. It would be game over. You'd have all the money, and I would be your very best friend. But none of those things are happening, right? No one has all of the answers and it is . . .
Liz Ann Sonders
No one. No one does.
Amy Reback
. . . fluid. It's always a fluid situation. It's really important to remember that.
Liz Ann Sonders
Yeah, no one has the answers. And, by the way, it's not what you know. You, me, our clients, investors. And by “know,” meaning about what the market's going to do. It's not what you know that matters. It's what you do along the way.
Amy Reback
Exactly. Exactly.
Liz Ann Sonders
And there's just no one that knows. And they might make a bombastic bottom or top call, but they could just as easily be wrong as right. And investing should never be about moments in time. Investing should be a disciplined process over time. And trying to pick tops and bottoms are about moments in time. And nobody can do that consistently well. Nobody.
Amy Reback
Emergency options applications. Yep, that's a great way to put it. Okay. What's going on in the economy right now? And how is that push and pull happening with the equity markets?
Liz Ann Sonders
Yeah, I think this is a really, really unique cycle. And maybe that's the ultimate understatement But unique because of the nature of the pandemic. We know that when the pandemic erupted, the first couple months, the bottom basically fell out of the economy because the entire globe went into shutdown mode. That alone was distinct relative to the typical version of a recession. But thanks to the massive amount of stimulus, we came out of it equally quickly. But what happened was, courtesy of that stimulus, at a time when demand surged, at that time, all that demand, all that money, got funneled into the goods side of the economy for the simple reason that there was no access to the services side of the economy. We couldn't eat out. We couldn't take a trip. We couldn't go to a concert, et cetera, et cetera. And that demand was met with supply constraints, again, because of the pandemic. That became the breeding ground for the inflation problem with which we're still dealing.
However, what's happened is that we went through the goods surge in the economy and, in turn, within inflation metrics. That has already rolled over. That's where you have recession-type conditions in the economy. That's where you're already in disinflation within inflation metrics, declining rate of inflation. But we rolled the demand and the inflation on to the services side of the economy. That's the nature of this cycle. We have this, I call it, a rolling recession because there are parts of the economy that are, no question, in recession-type mode. Housing, CEO confidence, consumer confidence. But we've got that, for now anyway, offset on the services side. And I think, to some degree, that's been mirrored in the stock market.
Again, stock market's a leading indicator. Last year was a year where the indexes, the S&P, the Nasdaq, the Russell, all had very healthy years. Limited weakness. However, under the surface, at the individual stock level, you saw a lot more weakness and a lot more churn. It rolled through the stock market. But there were pockets of strength that offset pockets of weakness, such that you ended the year and you didn't have a major drawdown at the index level. The opposite, to some degree, has happened this year. Yes, you've seen weakness at the index level—we're in a bear market—but weakness has no longer been masked by the indexes hanging in there. The average stock's not doing well, but now the indexes are not doing well either. And I think that is somewhat a reflection of what we've seen in the economy.
And the stocks that have been hit the most are the ones that were tied into the earlier phase of the pandemic—the goods-oriented, the stay-at-home stocks—where the newly minted day traders were gambling, for lack of a better word and probably is the most appropriate word. Some of those speculation-driven segments of the market, like the meme stocks and crypto and specs. And we've seen that unwind in spectacular fashion. I think there has been a bit of that mirroring, but you've seen it embedded in what the stock market has done before you've noticed it more acutely in the economy. And that's quite often what happens.
Amy Reback
Let me ask you this. That a lot of our clients and some of the largest equity plans are technology companies, and there is a huge mix. Some of them are technology companies that don't produce any kind of service or good. It's just the platform itself. And there's value and connection and things like that. But there are some that mix into actual services. So the delivery services, whether it's a wide goods, almost like a global mall, or food delivery. There's a lot of those. So it is technology, and they consider themselves technology companies, but there also is a service attached to it. How are those stocks reacting to this market cycle, and why is technology getting hit so hard relative to the others?
Liz Ann Sonders
The first thing I'd say is that you're right. The term “tech” or “technology” is often applied quite widely. If we're talking specific to the definition of the technology sector as part of the S&P 500®—and it's one of 11 sectors that make up the entire S&P 500—a lot of the stocks and the bellwether behemoth names that are often lumped into this tech category, Big Tech, are actually not in the technology sector. Even what formally were the big five, the FANG+ names: Facebook now Meta, Apple, Amazon, Google, and . . . what am I forgetting? Microsoft.
Amy Reback
Microsoft.
Liz Ann Sonders
Amazon is actually—Amazon and Tesla, if you want to put that in there because it's come in and out of the top five, along with Meta going in and out of the top five—those are communication services company. I'm sorry, Amazon and Tesla are consumer discretionary. Meta/Facebook and Google or Alphabet, but they're communication services. Now Apple and Microsoft are in the actual technology sector. So some of it gets a little bit confusing because we use this moniker of “tech” when the reality is they represent a broader swath in terms of sectors.
But, to your point, I think what is defining how stocks are behaving, which ones have been more resilient in this broader, lowercase-T tech category, which ones haven't, is where you have sat in that pandemic-related cycle. Even some big companies that have a broad enough diversity in their offerings—and I'm going to go outside of some of the names you mentioned—but Disney reported earnings yesterday. And I'm not an individual stock person. I don't sit and listen to conference calls. But I pay attention to the headlines. And there is a company that clearly was deep in the heart of being a beneficiary of the stay-at-home trade with their streaming service. But at that time, their theme parks were closed. Now you're seeing the opposite impact in terms of what they reported in numbers. That's really where you're seeing these themes, is how much of your business was tied to what boomed in the early phase of the pandemic and now is on the opposite side of that move versus benefiting from this boom now on the services side.
And what's also happening within the broad market, but even within these bellwether groupings of names, is you cannot look at them monolithically anymore. They no longer act like subsets that all move in tandem. Even just looking at those FANG-type stocks, those five common names, five or six. Huge difference in terms of how they're performing. And it's tied to all those things: where you are in the goods to services part of the cycle; how well you've managed your business; how well you've contained costs, fixed costs versus variable costs; what are your labor costs; did you overbuild in anticipation of the demand that we saw continuing? We're now back to, imagine this, an environment where fundamentals matter. And it causes a big difference in how stocks are performing, even in groups that used to behave more monolithically.
Amy Reback
That's interesting. As they get more blended . . . things used to be simpler. If you're Proctor and Gamble, you made products for the home, consumer discretionary, but now it's starting to get a little bit blended and mixed. How do you see that impacting the overall economy, or vice versa? What's coming next that you see in this rolling economy?
Liz Ann Sonders
Well, one way I think about it ties into what I think is a really important message to your audience—and really any audience of investors—is the labels that we often apply to certain categories of the market, categories of the economy, and I think in simple terms like defensive versus cyclical or growth versus value. But the reality is there's always overlap. So examples are given.
It’s part of the reason why I sit in the asset allocation working group at Schwab, and one of our jobs is to not just broadly provide advice and perspective for our investors, but, at times, we will make a tactical recommendation. We might overweight or underweight a broad asset class or sectors. But one area where we don't make tactical recommendations is growth versus value. And this is a broader discussion, but I think—when I give a couple of examples, that’s usually when if I'm in front of a group of our clients—it's usually when the looks go from, "I'm not really sure I understand what she's talking about. Everyone talks about growth and value. I get it, but why is she saying that there needs to be this important distinction?" When I give the examples, you get the, "Oh, I totally get what you're talking about now." So two or three examples.
One, I'm going to take us all back to October of '02. We finally finished the tech bust, the bursting of the internet bubble, the dot-com bubble. The market had bottomed. S&P was down more than 50% at that point. Nasdaq 100 was down 83% over that two-and-a-half-year-plus period. You wanted, at that time, to buy deep value. But deep value, at that time, was found in many of the tech stocks. Ultimately, the ones that would survive. They weren't moved into the value indexes. They still, for the most part, lived in the growth indexes. But if you were looking for the characteristic of deep value, that's where you wanted to go. If, instead, I just said, "Oh, buy value at the low," and you said, "Oh, I guess I just buy the Russell value indexes." Well, you would've been loading up on utilities and energy, the classic value areas, and you wouldn't have taken advantage of where the actual value existed.
Fast-forward to today. Two examples: Utilities live in the value indexes. More expensive in relative terms to the S&P, actually more expensive, but, relative to history, close to a record premium above the S&P. Just because they're expensive doesn't mean they're growth stocks. They still live in the value indexes, but they don't offer a lot of value. Conversely, the energy stocks primarily live in the value indexes. There is no place where there is stronger earnings growth right now than in the energy sector. Probably, Russell should move them into the growth indexes, but they still generally live in the value indexes.
I think you have to be mindful of what the characteristics are. There are times where defensive stocks become really expensive, and they don't offer that kind of defense because you're paying too much for them. Another myth-buster, because I know you started with that, is oftentimes, when I'll talk about momentum being a factor that's working, in people's heads, they think, "Oh, it's the tech stocks. It's the high flyers." Momentum just means that the stocks that have been working are continuing to work. That can be in any area. You can have momentum in treasury bonds. You can have momentum in the most boring, mundane segment of the market. It just means that momentum feeds on itself and that what has been working is continuing to work. It doesn't define some type of stock. It's just a factor that comes into play. And all of these things, I think, are what can trip up investors.
Amy Reback
One of the things that really impacts our audience, in particular with equities and the type of really big equity plans that are out there today, is companies and employers grant equities primarily, there's lots of different reasons, but primarily for retention. Sometimes it's to incent performance. And I'm not going to trip on the whole pay-for-performance thing that we're all dealing with right now. But, if you have a workforce where 50+% has never seen this kind of market cycle and you've worked at X company for 12-ish years, you've never really seen a sustained downcycle or a sustained depression in your stock price. You've been receiving these grants. You're happy as a clam. "This is great. They treat me so well. It's like another paycheck." And then the value of that is really low. Completely impacts your financial plan, what you can afford to do, not to do. All of those plans that go into the individual investor's long-term plan and the role that equity plays in that.
And so what we're seeing is a lot of companies are changing their granting practices. They're going to grant more. They're going to completely rewrite their plan and allow for more either pay-for-performance, for reset, all of those. It's like having options that are never going to be in the money. They have to rewrite the plan to either negate them, let them ride out, or reissue them at a lower price. Or just issue more at a lower price so that there's value for their employees. And you have to think there is a chain reaction there, right? Companies are already, their stock price and their market cap is already depressed. There's a lot of attrition for a number of different reasons. The pandemic's not over, but we can't put that toothpaste back in the tube.
So people are going back to work, and they're saying, "I really liked a lot of that flexibility. I want to have a better lifestyle. Maybe I don't want the 8:00 to 5:00. Maybe I start my own business. Maybe I work for a delivery company. But maybe I don't want to do the high-pressure job anymore." There's attrition because of that. It's a whole new world. There's attrition because they don't necessarily have those golden handcuffs with their equity. And a lot of the regranting is in the executive compensation, not necessarily broader based. A lot of companies do broader based, but the majority of them do executive compensation. Then you have the attrition and the cost of searching for and replacing those employees. And those employees, then, it's a brain drain when they leave and maybe go to another employer because they have a better offer. And that impacts their value again and again and again and again. What role do you see, from a bigger-picture perspective, that playing in the economy, and how does it rectify itself? Because that, in itself, is a rolling issue.
Liz Ann Sonders
I think it's been a huge factor in a lot of the underlying trends that have been going on, particularly in the labor market. But I think there's multiple drivers of it. You said, absolutely, when you're dealing with a heavy portion of your compensation being in your company stock and it starts to go down, there's that incentive to look for where the grass is greener. That starts to diminish, especially in a broad area like tech, when that industry, broader sector, is under increasing pressure. And that's where layoff announcements have been most concentrated in this environment. You have this window, that I think was across the economy and across sectors, of, "There's still a labor shortage. There's still a skills gap. If I have the right skills, I can jump ship."
It's also the case that you've had, until the last couple of months, a record quits rate. Three percent of the workforce on a monthly basis was quitting their jobs. That's now down to about 2.7, so it's starting to ease. And, until very recently, job leavers—the wage increase, the compensation for job leavers—the growth in the compensation was significantly higher than for job stayers. It was this witches brew that caused a lot of jumping ship. Not to mention, "Hey, I can live somewhere else with more remote work. I can put my skill set out there and put myself out there as looking for opportunities all over the country or world because it doesn't require that I have to live in the proximity of headquarters." And I agree with you. You used the “can't put the toothpaste back in the tube.” I always say “genie in the bottle.” That genie, I think, is never going back in the bottle. That doesn't mean that there isn't going to continue to be a focus on trying to make things hybrid.
I think, for younger workers there's a benefit to being in person. But we're never going back fully to the way it was. But I do think we're already seeing signs of some downward pressure in many of those areas, just reflecting the weakness in the economy, the weakness in the stock market, the fact that we have four months in a row now of big year-over-year increases in layoff announcements. I think the bloom, to some degree, is coming off the labor market rose. You might not pick up on it if you just look at things like the payroll headline or the unemployment rate. But under the surface, there's a lot more weakness.
The last thing I'd say, of course, is one of the things that we do, in helping our clients that get compensation in their company stock, is make sure you have a broader plan and that you focus on efficiency around diversification so that you don't have so much of your net worth tied just in . . . so there are tax-related and diversification-related strategies that can help smooth that ride when you're in the downcycle in your company stock.
Amy Reback
I heard an analogy one time, years and years ago, about diversification, and it was hilarious because everybody relates to this, right? This woman said, "When I go to the grocery store, every time I stand in line, I'm in the longest line. Everything is going faster than me. I've decided that I should just bring friends and give them a list, and we should all get in a line. And somebody's going to come out ahead, and somebody's going to come out last." And she said, "That's all it is for diversification when you're investing."
Liz Ann Sonders
My husband and I do that all the time is, if we're together somewhere and there are lines, it's like, "You wait there. I'll wait there. Make eye contact, and whoever gets up there first, we reconnect."
Amy Reback
Who's got the winner? Who's got the winner? Yeah. Let me ask you this, just to illustrate for our listeners. If you think of—let's go back to the whole new world that we're living in—work environment, you can work anywhere, doesn't really matter. I think the time zones are really the biggest thing, although I did find out this past summer that Tahiti's in the same time zone as Hawaii. Did you know that? You don't have to cross the international dateline?
Liz Ann Sonders
Yeah, yeah, yeah. If I think about a globe, yeah, that doesn't surprise me.
Amy Reback
I thought it would be a 12 or a 13-hour time difference. It's the same as Hawaii. Little bit longer flight, but the same as Hawaii. It was pretty amazing. I have big plans for next summer. Big plans, yeah.
Liz Ann Sonders
Oh, there you go.
Amy Reback
Why not? Why not? If you're an employer and you're trying to retain and work with the expectations of your workforce, and they want a lot more flexibility, and so you have primarily, mostly, a remote workforce, then you're not going to be buying a whole lot of real estate. And this is across the world because you don't have to bring everybody together from Monday through Friday. That means there's not as much real estate being sold, not as much demand. And if there's not as much real estate being sold, there's not as many buildings being built. So that has a ripple effect into even all the way up to building, natural resources. When the demand for those things go down, do you think that this shift in the workforce that our employers are experiencing will have a significant effect all the way through to something like harvesting wood for building buildings and steel and those fundamental commodities that go into this that build the buildings that eventually we go and we work in? But we're not there anymore. Is it big enough to have a long, sustainable impact on the economy?
Liz Ann Sonders
It is big enough, but I think it's more complicated than just we're no longer all going to an office building to do our job. I think we're in a major transition point in our economy that may be akin to when we went from being an agricultural economy to an industrial economy, from an industrial economy to more of an innovation, tech-oriented economy, and so on. And each time, the thinking is, “There goes . . . whatever it is . . . farms and all the jobs associated with it.” But we morph and adjust and change, and opportunities present themselves that we might not necessarily even think of. We're still, right now, in the ripples of the hybrid work structure, and not just things like commercial real estate and the buildings. And we're going through it now, with figuring out what percentage of our workforce, on a somewhat permanent basis, is going to be in a hybrid structure and re-stacking, as I just learned the term is, to make sure that when people are in, they're not one on one floor and two on another floor, and nobody's actually interacting.
I think there's a lot of that going on. There'll be changed usage for some of these buildings. I worry, in the near term, about the infrastructure around that traditional office environment. The food service, and, in a city, the restaurants and the transport. But I think one thing that, certainly, we as Americans and our economy has done extraordinarily well over hundreds of years is adapt and change. That's where I find, even though many would—who have been reading my work over the past year or listening to me—think, "Boy, Debbie Downer, here she is again." But I'm naturally an optimist. I have to call it like I see it when it comes to the economy and the market, but I'm a natural optimist. And one of the reasons why I'm always optimistic long term, about both our market and our economy, is just how we figure it out, to put it really bluntly, and just the innovative spirit, animal spirits, and adaptability.
And so I look at disruptions in the near term as inevitable, but I don't see it as some demise of our industry and our economy and our workforce. We're just going to have to adapt to the changes that the pandemic wrought, many of which I think are very good. I think that we all now realize that we can integrate our work and personal lives. It's not really a balance. People have been asking me, “How do you balance being a mom and working?” And I never thought of it as a balance because a balance, you give your all to one. If you're giving your all to one, the other's getting nothing. I've always thought of it as an integration. Maybe it's just semantics of the word, but I think more people are realizing, "I can integrate my work life and my home life. They don't have to be these distinct things defined by location and the clock."
Amy Reback
Yeah. It's a harder turn for those of us that have spent most of our lives on the clock because your life is defined by that cycle in so many ways. I'll digress for a minute and say I remember, a long time ago, I think I was a baby branch manager, and I was at my first big branch manager's meeting. And I was thinking, "How do you do this? How does somebody like Liz Ann or Lisa Hunt have a family and travel all over the world, and your shoes still match? I don't understand."
Yeah, I still wonder that sometimes.
Liz Ann Sonders
It's an integration. And I think the lovely thing too about the use of video like this and Zoom and WebEx, whatever platform you're talking about, is, we think about that as it's more impersonal than getting to know your colleagues or clients one on one. But in some ways, it's more personal. We know almost more about the people we interact with. We see what's on their bookshelves. We hear the dogs barking. We hear the doorbell ring. We hear babies crying or kids coming in the screen. And I think that's one of the most delightful things that's come about as a result of this. If you want to try to put a positive spin on what has been a pretty crappy almost three-year period of time, I think that's one of them. We almost get to know each other on a more personal level.
Amy Reback
Oh, yeah. I know so much more about my team after the last three years. I'm like, "Well, I can hear the dog again. How's he doing?" "He's snoring right down there." You really do get to know people in a different way, and it's been a lot of fun. Let me ask you this question. A lot of our folks are sitting there thinking, "Okay, our stock is really down. We're changing our granting practices. We're trying to retain our employees. And I want to be in the conversation." And one of the really unique things about equity comp is, depending on the employer, equity compensation might live in finance; it might live in HR; it might live in legal; and sometimes there's even crossover in between it . . . but some of the biggest departments or divisions in these huge companies.
And regardless of where you sit, it's this triad of “It might sit in legal, but I still have to deal a lot with HR. I still have to deal a lot with finance." They're constantly shifting their priorities of who they have to go to and who's responsible for what. So being able to be part of that conversation of what's going to happen—“Should we be changing our granting practices? How long do we think this is going on?”—I think it would be really helpful for our audience to understand, what do you look for? Being the eternal optimist that you are, what signals in the ever-changing winds of the economy and the markets, what do you look for that says, "Okay, there's the spark. This is the thing that I know is sustainable because it's linked to this, and these are all down the food chain, all the good indicators"? So what is it that you look for and that would be great for them to be able to interject into that conversation when they're sitting at the table?
Liz Ann Sonders
So from a stock market perspective, the most important thing is I nor anybody else can pick bottoms. And the most successful investors in the world haven't gotten there because they're making moment-in-time decisions, all in, all out, based on picking tops and bottoms. But there are indicators that give you a sense of when you're in the process, say, of bottoming, when the worst appears to be more in the rear view. Sentiment is a big, big part of that. Technical conditions. But then there's also the macro things that need to occur. This is where it morphs into the economic discussion. I think, specific to this cycle, what I'd say is, I think, from a sentiment standpoint, both in terms of the market investor sentiment, but also sentiment on the consumer side, consumer confidence, consumer sentiment, they both, at extremes, act as a contrarian indicator.
And once you get to the washout in one or both, it doesn't say, "Okay, bell is ringing. Bottom is in. We're off to the races." But it tells you that you're establishing some groundwork for better news to come. Absolutely have seen a washout both in investor sentiment and consumer sentiment. I'd say for both the market and the economy, we can already check those boxes. But, unique to this economic cycle tying to the market cycle, I think there are several other things that I think still need to happen that haven't yet. I think we need to see a stabilization in housing. I think we need to get a sense of when the Fed can take a breather and pause. They're not going to pivot anytime soon. They're not going to go from aggressive rate hikes to rate cuts. But just at least pull their foot off the economic brake and then assess what happens.
We're not there yet, but that's what I would be looking for. And in turn, just some stability in the bond market and in yields and the uncertainty tied with how much more do rates have to go up, and how much does that crimp activity? And notice I said stabilization in many of these things. I didn't say we need housing to bottom and soar again. We need earnings estimates to bottom and then soar again. We need to have the Fed be cutting interest rates. It's that the market has an incredible ability to sniff out inflection points, turning points. When I have my market hat on and I'm trying to get a sense of when the worst is past us and tying it into macro conditions around the economy, stabilization is the first thing that happens, and the market tends to key off of that.
A lot of investors say, "I'm going to wait until fill-in-the-blank gets strong again." And I can almost guarantee you've missed a lot of the opportunity on the upside. But the things to look for in each cycle are different. When you have housing having been a big driver of a cycle, you need to continue to focus on that to get a sense of when you're coming out the other side. There are other cycles where it's driven more by the stock market—the 2000 tech bust. I think we wouldn't even had a recession in 2001 if it weren't for the bear market in stocks. There was just so much of our net worth tied into the market that when the market fell, it took the economy down with it. Every cycle is a little bit different in terms of its drivers and, therefore, what to look for to get a sense of an inflection point.
Amy Reback
Right. Okay. Super helpful. I'm going to ask you one more question for our listeners because you explain things so well. I know you're on the national TVs, and you do a lot of live commentary. Are there resources where you are regularly appearing, like Schwab content or the daily live trading shows that you're appearing on regularly, where our listeners can tune in and hear what you have to say about what's going on?
Liz Ann Sonders
Absolutely. And, one, here's a cheat-sheet way to capture all of my output, regardless of whether it's something with regularity, which is follow me on Twitter. Because it's a constant stream of commentary, information, reaction to what's going on in the market, economic data points. But it's also where I post everything that I'm doing. I post the videos that I record. I post the written reports that I write. All of which is on Schwab.com, but it's sort of single-stop shopping on Twitter. Yes, I do Schwab Live daily, every Monday, a show called Liz Ann Live from 3:30 to 4:00 Eastern Time. That's a regular every week. Every other Monday, I write a written report that goes on Schwab.com. I appear on the TDA Network every Thursday morning at 9:15 a.m. But then the other stuff, CNBC or Bloomberg or CNN or CBS, that's more, not on the fly, but there's no, "Okay, you're on this day this time." But I post in advance everything that I'm doing. Everything I write, every video that I do, every podcast that I do goes on my Twitter feed.
Amy Reback
That's awesome. And that is amazingly different than it was 19, 20 years ago when I first started at the firm. You had to come and see Liz Ann in this ballroom in order to really be able to enjoy what you have to say and benefit from that. Isn't technology amazing? It's amazing.
Liz Ann Sonders
It is amazing. And I love being in person with my colleagues and with our clients, but this is also a very effective mean of communication. I've had days where I've done six full-blown client events via the camera . . .
Amy Reback
Wow.
Liz Ann Sonders
. . . talking to thousands of clients. Trying to do that in person . . .
Amy Reback
No way.
Liz Ann Sonders
. . . it just doesn't work as efficiently. I think a blend of both is great. And the reach is great, but there's also it's important to be with people in person. But I think it's a blend.
Amy Reback
Absolutely. Well, we'll look forward to the next time we have you out here. I think you were here last week for Impact in Denver. I didn't get to see you, but the next time you're here, I'll look forward to that. Thank you so much for joining us today. This has been really, really valuable.
Liz Ann Sonders
My pleasure.
Amy Reback
I know our listeners and our subscribers will benefit from it as well, as they go back to that table and talk about their granting practices. Thank you so much. Always, always a pleasure to see you.
Liz Ann Sonders
Thank you, Amy.
Amy Reback
Thanks so much for all of our listeners for joining us today. I hope you really enjoyed our session with Liz Ann. It's such a pleasure. I always learn something. What a special treat it was to have her on the show today. Thanks for being here today.
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For important disclosures, see the show notes or visit schwab.com/equityunpacked.