Talking Markets with Schwab's Liz Ann Sonders
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On this podcast, we take you inside those conversations, the stories, the ideas, and the stocks to watch so you can invest smarter. Now, let's dial in. Hello, everyone, and welcome to Barron's Live, our weekly webcast and podcast. I'm Lauren Rublin, Senior Managing Editor of Barron's. Thanks for joining us today for a look at the markets and investing.

My guests are Barron's Deputy Editor, Ben Levison, and Lizanne Saunders, Chief Investment Strategist at Charles Schwab. Lizanne was recently recognized by Barron's as one of the 100 most influential women in U.S. finance. Our complete list was published Friday on Barron's.com. Lizanne has been an influential voice on the markets across Wall Street for many years, and I'm delighted to welcome her together with Ben to today's call.

Glad to have you both on the line today. Thank you. Nice to be here. Great. All right, Lizanne, there's so much to talk about. It's hard to know where to start, but I think we'll start with the economy, which is on everyone's mind. And

projections about recessions, slowdowns, whatever are rampant. So lately, consumer sentiment and economic reports are definitely pointing to a slowdown, if not an outright recession. I'm thinking in particular about today's retail sales report. Sales rose just 0.2% month over month in February. That is a far cry from the 0.7% that economists were expecting.

So with that lead in, I'd love to get your read on the economy and consumer spending and your take on how worried investors should be about all of this. Sure. So recession risks are definitely rising, but to the extent you try to put percentage likelihood on it, and I don't try to do that, but the economists that do, in many cases, you're seeing growth.

up to 25% or 30% chance of recession. It's not yet showing up in a lot of the formal recession probability models like the one that the New York Fed puts out. It's based on the spread between the 10-year treasury yield and the three-month treasury yield. So we're not seeing a spike into extreme alarming territory. I would almost use a weather analogy. The watch comes first and then the warning comes.

And I think we should be on recession watch at this point, kind of dusting off what the playbook looks like. And you're right to point out the weaker retail sales. That said, there's a control group portion of that. That was up 1%. That's what feeds into GDP. So that may actually...

boost some of the current run rate estimates for GDP like that put out by the Atlanta Fed. It's called their GDP Now. It's a now cast. And that might actually bring it out of severe negative territory. But my sense is that

when we look at the weaker soft data, which would be the confidence-based data, the survey-based data, and that definitely has been weakening quite notably relative to the hard data of which retail sales is one component.

My guess is unless some of this uncertainty gets resolved fairly soon, what's more likely to happen is some catching down by the hard data to the soft data versus the other way around, which is what happened in a period like 2022.

Sounds like that hard data would be going the wrong way. Right. That's best guess at this point, given what we know. So there's a lot to unpack about the economy, but I want to focus next on the labor market. There's been a spike in job cuts, as you noted in a recent piece. And that's not only in federal job cuts, courtesy of Doge, but in corporate job cuts as well. So how do you size up the job market at this point? And what's the labor outlook?

So I would say that there are cracks that are forming within the labor market. Certainly, the layoff announcements that we get monthly via Challenger Gray and Christmas did show a jump year over year of more than 100%. It's not getting even close to levels like we saw in 2020 for obvious reasons tied to the pandemic, but it's a notable move higher. What it may represent is a

shift a little bit away from the backdrop that we've had the last several years, this notion of labor hoarding, where you would see cracks start to form in the labor market. You would see metrics like hours worked

come down and that continues to be the case, but you weren't seeing significant layoffs. So the way to judge whether there was any weakness showing up behind the scenes was to look at some of those metrics like ours worked. And it gave you the impression that companies were still unwilling to let go a lot of their labor

but maybe weaker demand or the prospects thereof meant that they were shortening hours. You also seen metrics like the underemployment rate, which is the unemployment rate traditional, but also

Disaffected workers, basically defined as people in the labor force not actively looking for a job, but would take one if they found one. And then also workers working part-time for what they call economic reasons. They have to to make ends meet. That's now 8%. So that's another little bit of a troubling sign.

unemployment claims have been fairly subdued still. But one very important reminder is federal workers, for the most part, don't file under that same system. So I think like I tweeted out with the latest claims number, a side-by-side look at federal claims, I think increasingly economists are going to have to do that to get a sense of what the spillover is

into the labor market by virtue of what's happening, not just at the federal level, but for every one federal worker, it's estimated there's between two and a half and three contract workers, not to mention you add in the Doge spending cuts,

which filter down into the private sector, whether it's the medical field or the education field, or down into state and local governments. And I think that fine-tooth combing of labor market data is going to be essential in this unique backdrop of what's happening, specifically with the Doge spending cuts. I'm curious which economic indicators you watch most closely to try to develop and stress test your economic views.

So I think you do want to focus on the traditional leading indicators. Among the labor market indicators, claims would be one of those. So if you think about three of the most popular labor market metrics, claims on a weekly basis and then payrolls and the unemployment rate on a monthly basis,

In that order, they go from being leading to coincident to lagging in nature. But then you can look at leading indicators of the leading indicators. I mentioned layoff announcements. Obviously, they come in advance of any meaningful uptick in claims. Even within a coincident measure like payrolls, which comes from the Establishment Survey out of the Bureau of Labor Statistics, the BLS also does what's called the Household Survey, from which the unemployment rate is calculated.

In the most recent monthly data, we actually saw a drop in the household survey of almost 600,000 jobs. That tends to lead the payroll survey at important inflection points. I think the PMIs matter a lot in this environment. So probably still most widely followed would be the ISM survey.

measures for both manufacturing and services. S&P Global does a version as well, also for manufacturing and services. Manufacturing weakness tends to show up first before you see services weakness. That certainly was the case in the aftermath of the sort of COVID stimulus era where we got this burst in manufacturing, a burst in the good side of the economy.

ultimately giving way to actual contractions, almost recession-like conditions in those areas, but we had the offsetting strength in services. Now I'd say you almost want to pay more attention to services as to whether we start to see a more meaningful weakness, particularly if we don't get an offsetting

sort of pickup or stabilization on the manufacturing side. So those are some of the metrics. Yeah. I was going to ask you, because we've seen finally the ISM manufacturing has, I think, been over 50 now for, you know, it was under 50 for a long time. Now it's been over for two weeks. Could you see it stay above 50, even as services kind of hinted at a recession? Yeah.

You know, you did see, yeah, so ISM manufacturing is still above 50 with the latest reading, but it did tick down. I mean, the short answer, Ben, is I don't know, but I think the obvious uncertainty being expressed by purchasing managers across the spectrum of services and manufacturing, more so by manufacturing tied to tariff-related uncertainty, is

Even if the next monthly reading doesn't bring that down to below 50, it certainly wouldn't surprise me if it did. It's hard to envision a scenario of a robust pickup off kind of that baseline of 50. If you look at the ISM data, not just the headline data, but understanding

underneath the surface of the broad indexes and you look at new orders, you look at prices paid. And then really importantly these days is the verbatim comments

from the purchasing managers, the companies that are actually weighing in on what might be constraining their outlook. Tariffs is just littered all over the place in these verbatims. So it's hard to imagine that we see a big lift from here. Maybe we stay at best case around that sort of 50 demarcation point, but it certainly wouldn't surprise me if we went to an undertick on that point.

expansion expansion versus contraction line again got it so is all of this coming from concern about trump tariffs or do you think there's something else behind this

So I think it's not just tariffs, but it's Doge-related uncertainty and then the sequencing of things. A lot of people were assuming we'd be operating in Trump 2.1 off the Trump 2.0, off the Trump 1.0 playbook. And the difference then, call it 2017 into 2018, to use the candy versus spinach, and

In that era, we essentially got the candy first with major, major tax cuts and some deregulation and then had to eat the spinach thereafter in the form of the 2018 trade war. Not only is the sequencing different this time where we're dealing with the tariff component of it, now the added doge-related uncertainty and significant spending cuts, that was not part of the playbook

in 2017, but we're getting the candy later. And you have to also maybe wrap the candy a little bit differently because what we're talking about for the most part is an extension of the 2017 tax cuts, not a full round of brand new tax cuts as was the case in 2017. So when you think about

the health of the consumer, the health of businesses, and how much more money will land in those pockets, assuming the tax cuts extended, it's not the same juice for the economy. Now, were they not to be extended, that's a huge hit to the economy. So not having that hit is better in terms of how you think about the economic outlook. But we do have to adjust our thinking because it's more of an extension than a brand new set. So I think the sequencing of this is

is really coming into play, not to mention a different level and number of uncertainties with which businesses and consumers are dealing right now. I hear a whole lot of spinach there.

So we're certainly getting the spinach now. Yes, absolutely. So what does it mean for the Fed, which actually meets this week and we'll get a dot plot forecast of FOMC members near and longer term rate projection. So I'm curious if you were to add your dots to the graphic where you would put the Fed funds rate at the end of this year and the end of next year.

What do you think? Well, knowing what we know now and that that that should be in all caps if you were going to type it out, because it's it's such an ever moving target in terms of of everything, tariffs and even, you

Doge-related, I would say the market's expectations of about three cuts this year might be a little too aggressive, barring a much more significant deterioration in the economy broadly, but maybe more specifically in the labor market. I think the Fed has increasingly made it clear that policy-related uncertainty and concerns about some upward pressure on inflation that would emanate somewhat naturally from tariffs

is such that I think their default switch is set to pause mode right now. So if I were establishing a DOT, it might be more in the one to two cuts this year, if that. But we still have a Fed, regardless of the tariff-related uncertainty,

that's operating with data dependency as a gear. And when you are operating with data dependency, it's going to be a function of the data. So I think probably the most benign outcome that would be supportive of the Fed easing policy, but not one that would be detrimental to financial markets.

would be what we used to think of as sort of this immaculate disinflation, that you continue to see a move down in inflation or a renewed move down in inflation without any kind of hit to growth, allowing the Fed to cut inflation

based on the inflation side of their mandate, not being forced to cut based on the employment side of their mandate. The likelihood of that happening, I would put fairly low odds of that. And that's why given what we know now, I think the decision by the Fed this month will be, we're not doing anything.

And I, you know, the dots will be interesting because I happen to wonder whether there's going to be a wider array of dots depending on the individual perspectives of those placing the dots on the plot.

We'll be covering that on Wednesday, most certainly. So, Lizanne, let's wrap up this segment of the call by asking about the stock market. It has devoured the spinach this year. Stocks are down quite a bit. Use your analogy, that is. And many people are wondering whether we're in the middle of what will turn into a bear market or whether stocks are going to bounce as they did on Friday and as they tried to do this morning.

So what is your market forecast for the rest of the year? Well, one thing that we don't do is try to precisely forecast the market either via a

decisions like year-end price targets. And I know that is a very popular thing for Wall Street strategists to do. It is never something that we do. I think picking some end point, be it the end of the calendar year and coming up with some precise estimate around the S&P without ongoing context associated with that

I just don't think makes a lot of sense, especially for individual investors, which is our bread and butter. Our $10 trillion of client assets at Schwab are largely individual investors. And we think it's interpretation and context along the way, helping investors navigate how to think about the equity portion of their portfolio, times to maybe be a little more defensive or

a little bit more cyclical or when to focus up the quality spectrum or look for opportunities down the quality spectrum. So that's the way we think about it. In terms of could this turn into a bear market? I think if economic conditions deteriorate and you start to see recession probabilities

escalate, it's more likely than not that a correction could turn into a bear market. That's based on history. When you've had corrections that start to worsen, and ultimately, with the benefit of hindsight, you look back and say, yep, ultimately, that was a precursor to a recession, or ultimately, that wasn't. We ended up with a soft landing or maybe not much weakness at all. Maybe it's the ultimate duh statement, but corrections that deteriorate

tend to stop shy of bear markets if you ultimately don't have a recession, not the case if ultimately you are moving into recession-type conditions. So I think it is the economy that holds the cards. I will also say, though, that you continue to have to look under the surface of what the indexers are doing to get a full picture of the

the market, air quotes around the market. So you're right to point out that we did just hit correction territory for the S&P 500, notwithstanding Friday's move back up.

So officially, if you want to argue using traditional terms, we're in correction territory. It's a bit worse for the NASDAQ and the Russell 2000. Negative 14% has been the maximum drawdown, again, notwithstanding Friday's strength. But I think it's important to go to the average member level. So if you look at the average member within the S&P 500 and look at the average member maximum drawdown, it's negative 15%. This is just year to date for the S&P 500.

The numbers are even more jaw-dropping for the NASDAQ and Russell. For the NASDAQ, the average member maximum drawdown from a year-to-date high is negative 32%, and it's negative 26% for the Russell 2000. So there's a lot more churn and rotation and weakness happening under the surface. Now, some might say,

Well, how can that be? It's no longer the Magnificent Seven that are driving the indexes. That would drive these cap-weighted index to a higher plane than what you might see under the surface. Yes, we don't have the mega-cap tech and tech-related stocks leading, but the best performer among the, call it the Russell categories of indexes year-to-date is the Russell 1000 Value Index.

So you've seen this shift from growth to value, but it's still the larger cap names helping to explain why the indexes look less unhealthy than at the average member level. But you've got to look at the average member level to just get a fuller sense of what's going on in the so-called market. That is a group of alarming statistics below the surface.

It was even the case last year, though, in a year like last year, where the S&P didn't even suffer a 10% correction, its maximum drawdown was only 8%, you had about bear market level declines at the average member level. And for the NASDAQ last year, which did suffer a correction, but

but a mild one, 13% in that late summer period of time. The average member maximum drawdown last year for the NASDAQ was almost 50%. So even in a year where it's perceived that the market has done great, incredibly resilient, nothing to see here, the fuller story gets told under the surface. So does this argue for buying index funds only? Not necessarily. In fact, what's interesting is you're starting to see

Maybe not broadening out in the traditional sense of breadth metrics, but if you go back over the past trailing one-year period, only about a quarter of the members of the S&P 500 outperformed the index itself, again, over the trailing one-year period of time. If you just look over the past month, 55% of the underlying members of the S&P are beating the index itself.

So what we're seeing is a backdrop actually of more dispersion, lower correlations, and a more level playing field for active relative to passive. That's not me saying...

Now the ball is fully in active's court and active is going to outperform passive. But we're seeing a rising share of the percentage of active managers that are outperforming their benchmarks. I think we're seeing an environment of more price discovery.

Since we had the return of the risk-free rate, courtesy of the Fed's aggressive tightening cycle that started in 2022, there is more connectivity between fundamentals and prices. We're seeing big macro forces.

Notwithstanding what we've already talked about on macro uncertainty with regard to trade and spending, at the individual stock level, there's greater and more direct connectivity to fundamentals, be it valuation-related or earnings-related, etc. So I actually think that this is an environment where investors should consider having some active exposure in their portfolio. In fact, in the exchange-traded fund space, the ETF space,

The higher amount of growth in terms of flows has been into active ETFs, not passive ETFs. So that is also testament to some of what I'm talking about. That's interesting.

All right. Well, I want to turn to Ben for a moment and talk about a couple of companies in the news this week, companies reporting earnings. And Ben, we are running longer than usual on the so-called macro part of the call, but that's understandable given all the macro news out there. Nonetheless, let's talk about FedEx. The company reports on Thursday. It used to be a bellwether for economic change, but I don't know if that's true anymore, especially given competition from Amazon.

At any rate, the stock has had a bad year. It's down 15 percent and that dragged its 12 month performance down about 4 percent. What's the earnings outlook and is there any hint of improvement? Yeah, this is a stock that really hasn't gone anywhere for quite a while. A lot of it is due to that concern about Amazon. We saw UPS basically announced its divorce from Amazon in recent months. It was something that FedEx had already done a while ago.

The earnings are actually supposed to be okay, up to $4.56 a share this quarter from $3.86. Revenue is expected to rise too. What the company really needs to do is to show that it can expand its operating margins. So when the stock was initiated with a buy on March 13th by Truist,

Everything was about margins. And they actually, truest analysts think that the margins can get to 9% in fiscal 26. That'd be above the streets estimates per 8.5%. But a lot of the gains, a lot of the improvements are expected in that fiscal 26, not fiscal 25.

And so that's really what you have to see is, can they get more efficient? I think that's the same argument that UPS has been making, that by eliminating Amazon, they will be able to have higher margin business, even if they lose kind of the volume that comes from Amazon. So it'll be interesting to see whether the market does believe it. The interesting part about it is that the stock has been beaten up. It trades very cheaply.

It's at around 11 and a half times 12 month forward earnings. And so it probably wouldn't take a lot to at least get the stock to hold these levels and maybe get a bounce. All right. We'll be watching that for sure. Next stock I want to talk about is Lennar, the home builder. The stock has performed even more poorly than FedEx. It's down 22 percent over 12 months. What has been ailing Lennar and what should investors expect from the latest earnings report?

I mean, I think the big thing with Lennar is that people are worried about a recession. At one point, it was that yields were going up and high yields mean higher mortgage rates that cause the stock to drop some. But now you add in these worries, you have yields coming down, but you have these worries about recession. Recession is never good for home prices.

And so it's across the board. It's not just Lenar. Lenar has gotten hit very hard. It's down 22 percent over the last 12 months, 20 percent over the last three. And its earnings are falling, even though its sales are rising. And that's always a problem. Still, you've had upgrades from some analysts, got upgraded at Seaport, Seaport.

And largely on valuation, these stocks have gotten beaten up a lot. And I think this is the argument that we're actually having in our newsroom is that, you know, are these stocks cheap enough? Are they reflecting all the bad news that is out there? And, you know, there are some people who say yes, but we're also seeing others sort of people with more macro perspectives coming in and looking at this and saying, you know what?

We haven't even begun to see really the downside to the housing market yet. Prices are still rising despite demand for new homes falling. And if we do get something like recession or even economic slowdown, it could be a problem. But there are a lot, as I said, there are a lot of folks coming in thinking that this is a, because they have dropped so much, this is a good time to buy. And if a lot of this drop is priced into earnings, you could get a nice bounce here. Good. We will definitely cover that as well.

Another stock we have covered, and I believe it was one of our stock picks not long ago, is Nike. The stock has not worked out well just yet. It's down 28% over the past 12 months, 7% over the past three. The company has a relatively new CEO. What will it take to turn Nike around, though? Yeah.

Yeah, I mean, it's a very good question. This was a stock pick last year around the Olympics. We thought that it had come close to bottoming and we were wrong. You know, you win some, you lose some. Yeah, we unfortunately lost this one. The timing was bad. I mean, it's one where you started to see the stock and it's not really going anywhere, but at least it seems to be stabilizing. There's some hope that

the new CEO can turn things around. As we mentioned with some of the other stocks, a lot is going to be about margins and whether they're bottoming in this case. So everyone acknowledges that this is going to be a really bad quarter for Nike. They're going to see revenue. Jeffries expects revenue to drop 10%. It expects the margins to be down around six percentage points. Earnings are down 69%. I mean, these are big drops.

But they also expect that it's reaching a bottom now, that they're starting to see some positive reception of new products. We did have good earnings from both Foot Locker and Dick's Sporting Goods sell Nike shoes.

And so a lot of this, again, is betting on that we're getting close to the bottom here and that you're going to get a rally off of it. And so, you know, it was a stock that was upgraded at Jefferies. Oppenheimer is feeling very much the same way. They see the stock being able to hit $120. That'd be up 50% from here.

And basically just by reestablishing itself as a brand that people want to buy. That's, I think, the biggest problem for Nike is it really did some brand damage. People are buying Hoka's. They're buying other shoes. They're looking elsewhere. And so that's what the new CEO has to face. Everybody's wearing Ons from what I can tell, which is not good news for Nike. Nope.

but this gives the company an opportunity. Personally, I like these barefoot shoes. I've just got my first pair. Those are interesting feeling. I've never heard of them, but I'm going to check them out after this call.

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Upgrade your playbook and make the switch to NetSuite, the number one cloud ERP. Get the CFO's guide to AI and machine learning at netsuite.com slash wallstreet. netsuite.com slash wallstreet. So I want to go to some listener questions. And the first one, Lizanne, is for you. And it's what I think I would like to know as well from LB, which areas of fixed income and equity look particularly interesting to you?

All right, well, I'm going to answer on the equity part because I'm the equity strategist. My colleague, Kathy Jones, is our chief fixed income strategist, and she's a prolific writer. So you can check her out on social media or on Schwab.com. But on the equity side of things-

We have had very much a factor focus in the last couple of years. That's not in lieu of a sector focus, but at least as an addendum to any kind of sector focus. So our favorite sector just at the sector level has been financials, communication services second to that. But we believe in factory and investing as the better way to approach this kind of market. That's just investing based on certain characteristics.

We've had a quality wrapper around the factors that we've been focusing on last year. There's a big focus on high interest coverage, strength of balance sheet, a strong free cash flow. As we came into this year, we thought you wanted to add

some defensive type factors. So the one we've been emphasizing most as we came into this year was low volatility. And that actually has been the best performing factor by a wide margin in this past month worth of equity market volatility. So you continue to see these huge sector swings on a week-to-week basis. It's really difficult to navigate around where there's been more consistency and performance is at that factor level.

Question from me. Maybe that's not fair, but I think it's an interesting point. You had a chart recently that you published. It looked at the MAG-7 versus something called the MSCI EMU Aerospace and Defense Index. And the MAG-7 was heading down. The GDTR, as it's called, was heading up. And I wonder if you can discuss the relationship and why you chose to focus on that.

Now I hear something. Okay. Sorry about that. Did you hear the question? Yeah. About the Magnificent Seven. Versus the MSI EMU Aerospace Defense Index. You had a neat chart in one of your recent reports. Yeah. It was actually probably in my colleague Jeff Kleintop's report, who was my counterpart on the international side. And it was comparing what are the seven largest defense stocks in

in, uh, in Europe, which at least as of last week, at some point, I think we're up 30% year to date versus obviously a very, very different profile for the magnificent seven, which as of the worst part of the weakness last week, collectively as a group went into bear market territory. And only one of the magnificent seven meta is outperforming the index year this year. That's in stark contrast to only one underperforming the, uh, the index this

last year. And I'm not going to rehash all the macro reasons, but all of this trade uncertainty and protectionism has meant that Europe is stepping up and spending a lot more on defense, particularly in a country like Germany. And that has been to the benefit of those stocks. And it's just kind of a fun way to compare what were the seven big high flyers in the U.S. may now have a sort of a different moniker. Yeah.

I thought it was an interesting comparison. So we have a question from Steve who wants to know how Schwab is thinking about their client base in terms of access to alternative assets and even crypto. Can you talk a little bit about, I guess, portfolio construction? Yeah. So I won't, you know, we have offered, by the way, I'm not a crypto expert in any way, shape or form. So

We are offering more access to crypto, not yet trading in spot, but it's a whole other team of people that are involved in that. So stay tuned. We just brought an internal person into running that whole digital assets area. So more to come on that.

As far as alternatives, again, not my area. I'm not involved on a day-to-day basis. However, we are working on further democratizing investing, allowing access to alternatives for individual investors, kind of breaking down those barriers that have existed before, in some cases just

asset size that was needed in order to get access, whether it was to private equity or private credit. And we're bringing forth platforms that allow individual investors. Beyond that, I can't go into more detail at this point, but both are being expanded at Schwab. Do you have any comments about investing in gold? We had some questions about that.

Yeah, so we always tell investors that having a small share of gold makes sense in portfolios, but it's also a function of what the goal is with regard to gold. Gold is sometimes still seen as the ultimate inflation hedge, but it actually has not served as a consistent inflation hedge for the past several decades. What it's been, and I hate to use the word hedge again, but when it has tended to work

has been periods where there's heightened geopolitical instability or uncertainty. I think clearly that defines the era in which we live right now. There's also been a tremendous amount of foreign buying, inclusive of foreign central banks,

of gold in this backdrop, in some cases as part of the diversification effort underway. A country like China, which has been diversifying away from a mass holding of U.S. treasuries into other areas, gold being one of those. I think there's also some money

that may be split, money that some holders might move into crypto for some of those same reasons, diversification, concerns about strength of the fiat currencies, the US dollar in particular, concerns about reserve currency status, of which I'm not concerned, but that seems to be a concern. So I think there's some that with that money, it finds its way into crypto and others, maybe the more traditional money, finds its way into gold.

So the one thing I would say about gold, though, is it's become much more tradable. There's a lot more action in gold and in precious metals and even in commodities more broadly by, say, individual investors, short-term speculators, traders, which means you do have to

Apply a sentiment lens into the analysis, too, where the fundamentals might not change, but you get overstretched either in sentiment terms or technical terms, kind of overbought, oversold conditions. So just be mindful of that in an asset class like gold. The whole new world. For sure.

You mentioned gold as a hedge against inflation. That leads to a question we got from Thompson on your view of the level of inflation six months from now. I love the use of the word level in that question because I think that's one way to differentiate how to think about tariffs and the impact on inflation.

It's not so much that tariffs put upward pressure on the rate of inflation on an ongoing basis. That probably isn't going to happen. It's more of a step up in the level of prices without it representing some consistent year-over-year rate of change. So I think that's an important differentiator. That said-

In that is not me saying, so don't worry about folks, this isn't inflation. And the reason why, in part, why I say that is we as analysts, strategists, economists live in the weeds of this inflation data. We understand CPI versus PPI versus PCE. And we look at month over month changes and year over year changes and core versus headline and core services, X housing changes.

And I don't anticipate tariffs turn into some consistent month-over-month significant increases. But here's the rub, is that thinking in level terms, prices now versus where prices were, that's how consumers think about inflation. They're not in the weeds of all the nonsense that I just talked about. They think-

Boy, you know, eggs are X amount more than they were. Cars are now set to be X amount more than they were. So it does matter in the sense that it infiltrates animal spirits and expectations and decisions around consumption. So it is a level set up, but that's important because that's how consumers think of inflation. Yeah.

And do you think it will be a level set up six months from now? Unless all tariffs are taken down, it's hard to come up with an argument against that. You know, you're starting to see estimates now creep into the auto space upwards of maybe as much as, you know, $12,000 additional per vehicle just because of the tariffs that have been put in place on steel and aluminum, on imports from Canada, on imports from Mexico and

Same thing with a lot of electronics, given the tariffs that have been put in place on imports from China into the United States. And as a reminder, tariffs are paid by the U.S. company importing those products. It sort of bothers me, the shorthand that is used in particular by the media. And I get it. I understand what tariffs, how they work. But tariffs on Canada, tariffs on China, the real longer headline should be tariffs on China.

goods being imported from Canada, China, Mexico, wherever it is, into the United States, the tariff being paid by the U.S. company. Then the decision has to be made, do we eat it in the profit margins or do we try to pass on that higher cost to the end consumer?

Either way, $12,000 on a vehicle is going to come out of somebody's hide. That's tremendous. That's right. So big, big increase. All right. I have a question for Ben from Bill, and I'm dying to ask you this question, Ben. Bill wants to know, what are your thoughts on being the day trader as opposed to a buy-and-hold philosophy? They're two very different things. I was a day trader for eight years. Okay.

I did okay at it. I wasn't great. I was okay. I worked with some people who were great. Well, you're great at the journalist. I want to say that. No, it was, journalism is definitely a different job. I would say like, you know, you can be a day trader, but it has to be treated as a job. It's not something that you can just go and, you know, sit down and kind of

pretend to do or spend a little bit of time. You have to figure out what your strategy is. You have to find your edge, the thing that you can repeat over and over and over again to help you make money. If you can't find that edge, it's like poker. They say if you can't identify the, what's the term I'm looking for, the sucker at the table, then it's you. You have to have that edge.

Otherwise you need to walk away. I mean, it's, it's also a risk management game more than anything. It's how do you limit your losses and write out your winners? You know, you're, you're, you're trying to, you know, it's just, if you can limit those losses and make sure that you're making on some of the winners, it can work out, but it is hard.

It takes a toll. If you don't have the right personality, I did not. It really takes a toll on you over time. There's just a lot of stress involved and it is a lot of work. Investing those is a very different game. You are playing, you're taking long view on things. I will say that, you know, being a day trader ruined investing for me and made it very hard to be able to take that long view and look through things.

But the long view we also know has worked out very well in the United States being in the market. They say time in the market is better than timing the market. And that for most investors, if you have money and you need it to grow or you want to just keep adding in and save for retirement, that is the way to go. But trading is possible. You just got to work hard at it and you really have to identify that edge. Give yourself a certain amount of time, a certain amount of money, and if you can't do it, walk away. That's very good advice.

So I'm going to sneak in one last question, though we're running a bit late. Kevin wants to know, Lizanne, how do you see individual investors and RIAs, that's independent advisors, positioning going into the second quarter? I love that question, but I'm not going to answer it directly because I think anybody does does a disservice to who the client is.

I often use an example of this. I could have a really, really high conviction of what I think markets are going to do. But if I were sitting across from two investors, let's just call them individual investors. Investor A is 25 years old, just inherited $10 million from the grandparents, is gainfully employed, is a risk taker, goes skydiving on the weekends.

isn't going to freak out at a 10% or 20% loss in a portfolio. Investor B is 76 years old. They've retired. They built a nest egg. They need to live on the income generated from that, and they can't afford to lose any of their principal. So what I would tell those two investors is entirely different. So anyone that answers the question, how do I position

That's cookie cutter and that's not anything we do. It should be a function of what's your risk tolerance. I think this is, it's always a good time to assess your risk tolerance and whether your emotional risk tolerance is deeply connected to your financial risk tolerance or whether there's a yawning gap between those two. So that's the way to think about periodic rebalancing, volatility-based rebalancing, making sure you haven't allowed your portfolio to get concentrated, that you have diversification

these days, particularly into international. This idea that the US was the only game in town a year like this is proving that there are merits to having diversification across asset classes, not just within asset classes. So I know ideally people hear, oh, we'll have the X exposure to equities and X exposure to fixed income and overweight this sector. But that's a cookie cutter answer. And that's not the way investors should approach investing.

All right. And maybe think twice about skydiving on weekends at a certain age. All right. We have run out of time today. I want to thank you for joining us. It was really great. And thank you, as always, Ben. Thank you. Absolutely. Thank you to our listeners. Thanks for your marvelous questions today.

And do come back next week. Ben and I will be here. We'll be talking with Matthew Fine, a portfolio manager at Third Avenue Management. And the subject will be value investing. You heard a bit about that today. We'll also talk about the outlook for markets and some stocks and some industry sectors. So hope you're on the call again next Monday. Until then, everyone, stay well and have a great week.

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