00:00So clients at Schwab are cautiously optimistic. I think looking at how we have seen and how things
00:05have changed over time, concerns still on high inflation, geopolitics being on top of mind,
00:13and in general, valuation on equity seems to be what is driving a lot of activity. But
00:18after a summer, a little bit of slowdown in the summer, clients at Schwab starts to pick up
00:24their activity. They're still looking for opportunities in risk on assets. And a lot
00:30of that is as a result of, you know, our point of view that we see this as an expansion
00:35of the cycle
00:35as we see high growth economically. And as we can see, the economy is still being pretty, pretty,
00:42pretty good across the board with labor market, even with housing market and consumption,
00:47particularly, you know, fairly strong. As we get closer to the end of the third quarter,
00:52if you look at the S&P 500, only up around 2.6% so far this quarter as we
00:58get toward the end of
00:59September. And it's been tight in this narrow range for a couple of months now. What do you expect to
01:05be a catalyst that can break it out of the range, either to the upside or the downside?
01:10Well, earnings will always be a big driver and a big catalyst. You know, if the trend continues,
01:17like we saw in the first two quarters, we should expect a little bit of an increase
01:21in the overall levels of the market. I think our concerns now is that breadth of the market is
01:26still fairly low. And that's not very healthy for just a bull market. We've seen that there is fewer
01:34and fewer stocks that reach their all time highs. And as you said, you know, they seem to be moving
01:39in this cycle. I think uncertainty around monetary policy, uncertainty around, you know, elections
01:46will maintain the market in sort of more volatile ranges for the next few months before earnings
01:52season starts to kick in and we start to go back to fundamentals. Well, I'm glad you brought up breadth
01:57because there was an equity insight I did on Friday that was actually looking at how more stocks in
02:01the S&P 500 were touching those 52-week lows versus highs at the most in almost a year since
02:07October
02:07of last year. But then if you look at J.P. Morgan, I mean, they are not going to kick
02:11off earnings
02:12season until October 13th. So we still have a few weeks away. So what do you expect to be kind
02:18of
02:18the driver here for equities the next few weeks? Well, you know, over the course of the last six
02:25weeks, you know, we have gone from obviously a lot of attention put into monetary policy. We seem to be
02:31a little more clear on what that path is, where we believe it's going to be a short tightening cycle.
02:37We don't expect this to be an extended cycle. So overall, you know, the attention now goes into trade
02:43negotiations, obviously related to what is the price of oil going to do to particularly look at
02:49inflation. Most of the discussions and volatility and headlines will be about trade and about what
02:55may be the next potential impact to GDP. Consumption will be key. We'll continue to see a strength in
03:03the consumer. Nominal GDP is expected to stay above 5%, which is great. So overall, I think for the
03:10next few weeks, the volatility will be more related to trade related activity and potential impact on
03:16oil in both equities and bonds. Talk to us about bonds there, Omar. I can clip some very nice coupons
03:22in the Treasury market. Are you suggesting people take any credit risk above that?
03:28No, we don't think there is necessary at the moment to go deeper into any credit part. We still like
03:34corporates. I think balance sheets are very strong, Paul. We've seen that throughout the last, you know,
03:40couple of years. And we believe that intermediate part of the corporate, you know, part of the bonds
03:46is very attractive, especially in these entry levels are actually pretty good. There is no need
03:51to go into high yield or target further into credit. I think staying in the corporates in the
03:56treasury, as you said, is to provide a very good income source and also provides a good
04:02diversification for equities. This is not going to be the same as 2022. The reasons why we're at
04:07these levels are very different.
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