Stocks Stage Rebound as Dip Buyers Wade Back In: Markets Wrap

Summary

Bloomberg Businessweek Podcast Summary

Episode: Stocks Stage Rebound as Dip Buyers Wade Back In: Markets Wrap

Date: November 5, 2025

Hosts: Carol Massar, Tim Stenovec
Location: Schwab IMPACT 2025 Conference, Denver
Featured Guests: Rick Royster (CEO, Charles Schwab), Liz Ann Saunders (Chief Investment Strategist, Charles Schwab), Omar Aguilar (CEO & CIO, Schwab Asset Management), Kathy Jones (Chief Fixed Income Strategist, Schwab Center for Financial Research)

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Episode Overview

This episode takes listeners inside the Schwab IMPACT 2025 conference in Denver, focusing on the evolving investment landscape as stocks rebound, retail traders assert influence, and new asset classes like crypto and private credit enter mainstream discussion. Interviews with Charles Schwab executives and strategists highlight trends in risk, market concentration, generational shifts, and the potential pitfalls and opportunities ahead for investors.

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Key Discussion Points & Insights

1. Charles Schwab’s Momentum and Market Environment

Speakers: Carol Massar, Tim Stenovec, Rick Royster

• Schwab’s stock has surged 26% year-to-date, buoyed by strong retail investing and positive Q3 earnings.

• The firm manages over $11 trillion in client assets and boasts 46 million clients, spanning retail investors and advisors.

• Long-Term Investment Philosophy:

  • Rick Royster emphasized prioritizing long-term strategies over short-term market timing:

    “Owning securities and assets over long periods of time will generally go up... It’s really hard to get the timing of markets down because you have to make two correct calls.” (03:59)

• Retail “Dip Buying”:

  • The recent market pullback saw retail investors leading “buy the dip” action—even ahead of institutions.

    “Retail traders have been the ones leading the market higher and have been the ones buying the dips.” (06:37)

  • Advice: Stay the course—and avoid the urge to exit and re-enter based on sentiment swings.

2. Challenges of Market Concentration and Diversification

Speakers: Carol Massar, Rick Royster, Liz Ann Saunders, Kathy Jones

• Mag 7 & Big Tech: The S&P 500 is more concentrated than ever in a handful of names.
• Difficulty in convincing clients to diversify when their concentrated positions (e.g. in Nvidia or the Mag 7 stocks) have outperformed:

  “It’s a really hard conversation…they’ve been right by sticking with their concentrated position…they are sitting on more gains than they might have anticipated.” (05:58)

3. Rise of Retail and Gen Z Investors

Speaker: Rick Royster

• One third of Schwab’s new clients are Gen Z (13-28), driven by digital outreach and comprehensive support.
• Schwab’s strategy: Combine robust digital offerings with personal support and educational resources—also leveraging platforms like YouTube and TikTok.

  “We’re the number one followed financial services company on YouTube...young people are attracted to the breadth of the Schwab value proposition.” (08:49)

4. Prediction Markets, Gambling, and Crypto

Speakers: Tim Stenovec, Rick Royster, Kathy Jones

• Prediction Markets: Schwab is unlikely to move into prediction markets or gambling, citing the negative impact on wealth.

  “Gambling has proven to be a net negative contribution to your wealth...our mission is to make clients better off in their financial life.” (10:28)

  • Royster warns against the blurring of lines between gambling and long-term investing.
• Crypto Exposure:
  • 20% of US crypto ETP assets are held by Schwab clients.
  • Schwab plans to offer spot crypto (aiming for 1H 2026).
  • Royster personally remains skeptical, prioritizing productive assets.

    “For me personally, my investments are in assets that I consider productive...that’s where I focus my investment portfolio.” (13:03)

  • He acknowledges, however, that crypto has a place as a passionate or thematic investment.

5. Private Markets and Alternatives

Speakers: Carol Massar, Tim Stenovec, Rick Royster

• Schwab aims to broaden access to private equity, credit, and venture, including potential index-like passive vehicles and marketplaces for individual private securities.
• Vision: Democratize access to alternatives for retail clients, create new products akin to S&P 500 index funds but in private markets.

6. Elections and Market Strategy

Speaker: Rick Royster

• Elections and political shifts have historically not derailed market growth.

  “Markets have thrived through all types of administrations and changes…stay diversified and be invested and have a plan for your financial life.” (15:33)

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Schwab Strategists’ Views on the Market

7. Market Breadth, Rotation, and Risks

Speaker: Liz Ann Saunders

• Despite headline gains, most stocks in the S&P/Nasdaq have suffered drawdowns—market gains are not broad.

  “The average member within the S&P...since April 8th has had a 17% drawdown...the breadth isn’t there, but there’s a lot of churn and rotation under the surface.” (19:57)

• Valuations and AI Impact:

  • Valuations are stretched, but “valuations are more a temperature gauge than a timing gauge.”
  • AI is reshaping productivity but creates sector bifurcations and societal disruption, particularly jobs.

    “It is a game changer...but hallucination rates are still high enough.” (25:29)

• 6-12 Month Outlook: Expect continued divergence between winners and laggards; watch for broader market participation if megacaps falter.

Notable Quote:

“We’re in a moment of creative destruction…companies that don’t adopt AI are going to have more job losses…AI is replacing tasks more than it’s replacing full occupations.” — Liz Ann Saunders (23:50)

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Credit Markets & Systemic Risks

8. Credit Market Resilience and Hidden Risks

Speaker: Omar Aguilar

• Corporate America’s balance sheets remain strong; high-yield market is less "junky" than past cycles.

• Risks are more idiosyncratic—look for pockets of stress, not system-wide cracks (yet).

  “The credit market has been incredibly resilient since 2008...delinquencies are growing, not outside of the norm.” (29:14)

• Warning: Excessive market momentum and concentration could lead to sharp corrections.

  “The concern we have is that there is too much momentum...it needs to be somehow corrected.” (33:59)

• The next “blowup” risk may not come from obvious places, but from over-leverage and hidden weaknesses.

9. Fixed Income Outlook and Fed Policy

Speaker: Kathy Jones

• Bond market is unlikely to see significant yield declines without a major economic shift; inflation sits around 3% and could edge higher.

  “The bond market has a lot of room for longer-term yields to go down absent a very big change in the economic outlook.” (39:50)

• Potential systemic risks could emerge from private credit and shadow banking—areas where transparency is lacking.

  “Private credit is private...it’s hard to know the quality of the assets on any given day.” (43:47)

• The Fed is in wait-and-see mode; employment remains the best barometer of macro health.

  “People are okay until they lose a job…that’s why the unemployment rate is so crucial to watch.” (48:19)

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Timestamps of Important Segments

• [03:01] Rick Royster on the first year as CEO and Schwab’s value proposition
• [03:59] Long-term investing and the risks of market timing
• [05:12] Navigating concentrated portfolios and client reluctance to diversify
• [06:37] Rise and resilience of retail traders
• [08:02] Engaging Gen Z investors
• [09:12] The pitfalls of prediction markets and gambling
• [11:45] Crypto trends and Schwab's upcoming spot crypto plans
• [13:03] Royster’s personal stance on investing in crypto
• [14:04] Expanding access to private markets and alternatives
• [15:33] Elections and long-term investing strategy
• [19:57] Liz Ann Saunders on market breadth and underlying risks
• [23:50] AI’s dual role as a disruptor and driver of productivity
• [29:14] Omar Aguilar on credit market resilience
• [33:59] The risk of too much market momentum
• [39:50] Kathy Jones on fixed income and the post-Fed environment
• [43:47] Systemic risks lurking in private credit
• [48:19] Unemployment’s centrality to the economic outlook

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Notable Quotes & Memorable Moments

• “Owning securities and assets over long periods of time will generally go up...it's really hard to get the timing of markets down.” — Rick Royster [03:59]
• “Retail traders have been the ones leading the market higher and have been the ones buying the dips.” — Rick Royster [06:37]
• “We’re the number one followed financial services company on YouTube...young people are attracted to the breadth of the Schwab value proposition.” — Rick Royster [08:49]
• “Gambling has proven to be a net negative contribution to your wealth...our mission is to make clients better off in their financial life.” — Rick Royster [10:28]
• “Valuations are more a temperature gauge than a timing gauge.” — Liz Ann Saunders [22:17]
• “It is a game changer...but hallucination rates are still high enough.” — Liz Ann Saunders [25:29]
• “I actually think that companies that don’t adopt AI are going to have more job losses.” — Liz Ann Saunders [23:50]
• “The concern we have is that there is too much momentum...it needs to be somehow corrected.” — Omar Aguilar [33:59]
• “Private credit is private...it’s hard to know the quality of the assets on any given day.” — Kathy Jones [43:47]
• “People are okay until they lose a job…that’s why the unemployment rate is so crucial to watch.” — Kathy Jones [48:19]

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Episode Tone

Upbeat, data-driven, occasionally wry, and candid. The hosts and guests balance optimism about innovation with a clear-eyed view of potential risks and the uncertain macro landscape. The commentary is sharp, often self-aware, and tailored for a savvy audience trying to stay ahead of the curve.

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Conclusion

This episode delivers a comprehensive look at the forces shaping markets in late 2025—from the retail investor boom and big tech's dominance to crypto's mainstreaming, the unknowns in credit markets, and the persistent question: what haven’t we seen yet? Amidst optimism and celebration, Schwab's leaders advise vigilance, diversification, and staying grounded in fundamentals as both opportunities and risks evolve.

Transcript

[Carol Massar]

Bloomberg businessweek is brought to you by Evolving Money, a podcast that explores how cryptocurrency is the next logical evolution of the financial system. Follow the podcast, which is sponsored by Coinbase, wherever you get your audio programs. Introducing the all new Adobe Acrobat studio now with AI powered PDF spaces do more with PDFs than you ever thought possible. Need AI to turn 100 pages of market research into 5 insights with a click? Do that with Acrobat. Need templates for a sales proposal that'll close that deal. Do that with Acrobat. Need an AI specialist to tailor the tone of your market report to sound real smart in real time. Do that with the all new Adobe Acrobat Studio. Learn [e-mail] dothatwith acrobat so have you.

[Tim Stenovec]

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[Carol Massar]

Bloomberg Audio Studios Podcasts Radio News this.

[Podcast Announcer]

Is Bloomberg businessweek Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily Podcast with Carol Massar and Tim Stanvak on Bloomberg Radio.

[Carol Massar]

All right folks, if you really want to know what's going on in the investment universe, you really want to talk to the folks at Charles Schwab. It is a great place to start. First of all, it's $175 billion market cap company stock is up about 26% year to date following its recent earnings. At least 11 analysts raised their price on the stock after Schwab's third quarter earnings beat thanks to a surge in retail investing activity. And it's something we certainly want to dig into.

[Tim Stenovec]

Yeah, let's talk about some more numbers behind the firm. $11 trillion more than that in client assets, 38 million client brokerage accounts, 2.2 million bank accounts, 5.6 million workplace plan participant accounts and over 16,000 independent investment advisors. Thousands of them are here at Schwab Impact 2025 in Denver.

[Carol Massar]

Now. Rick Worcester took over CEO in January of this year after previously serving as president for about three years at the company. Was head of Schwab Ass Solutions before that. So you have been at the company company for nearly a decade, is that right?

[Rick Royster]

Yes.

[Carol Massar]

Welcome. Thank you. Thank you.

[Rick Royster]

Thanks for having me on and we're so thrilled that you made the trip to be here in Denver at the conference.

[Carol Massar]

Well, we love coming here because we really do feel like it's good to get out of, I feel like the coasts and I feel like it's good to talk to the people who are actually managing tons and tons of money on a daily basis. Talk to us about your first year and some of what's been coming at you and how you and your team are making sense of kind of the investment environment when things can change, often on a day to day basis.

[Rick Royster]

The most rewarding part of the first year has been serving our 46 million clients. And it's been a year in which the value of what we bring to the table, great in person experiences, the leading digital app, the strength of our bank and wealth capabilities where all of those things have been necessary to help clients navigate markets. So that's what I take most from the first year. It's just such an incredible opportunity to serve our clients and the 16,000 advisors on our platform, many of whom are here. It's a real honor to be their partner in business.

[Tim Stenovec]

Well, the market environment right now, we want to dive right in there because really this week we've heard from different Wall street executives that an overdue collection have weighed on the market this week. So reduced expectations for Fed rate cuts, a prolonged government shutdown. Michael Burry added to the negative tone with his disclosure of bearish wagers on Palantir and Nvidia DIP buyers. Though coming back into the trade today, retail investors have been buying dips. How do you see today's environment from sort of a risk reward perspective?

[Rick Royster]

We try to focus our clients on the long term. I think that owning securities and assets over long periods of time will generally go up. It's really hard to get the timing of markets down because you have to make two correct calls. First you got to nail it to get out at the at the right time, which is really hard in the strength of the kind of market we've had and the momentum we've had to get out at the right time is incredibly hard. And then you've got to be able to get back in at the right time or you miss out. I was down in Charlotte, North Carolina visiting with some clients and I heard from one client who back in 2016 didn't like the presidential administration and so had sold out of stocks. And this was back when we were having a pullback and they said would now be a good time to get to get back in the market. And they'd sat out a huge amount of gains over a short term point of view, we try to have clients avoid that. If clients can stay in the market and tolerate some volatility, we think over the long run that gets rewarded because it is so hard to call the markets both when to get out and when to get back in.

[Carol Massar]

So as you walk around the floor and you're talking to advisors, I mean, what are they talking about, you know, in terms of timely advice that you're getting maybe from the advisors and what they are kind of hearing from their clients?

[Rick Royster]

I think one of the most pressing topics from investors today is how to navigate concentrated positions. The S and P is as concentrated as it's ever been.

[Kathy Jones]

Right.

[Carol Massar]

The Mag 7, the Big Tech.

[Rick Royster]

Yes. And it's created tremendous wealth for lots of retail investors. And now they're wondering how to diversify their portfolio and to do so in a way to minimize their tax burden. And there's all kinds of strategies that they can work with their advisor on to create a more diversified portfolio without having to pay a tremendous amount in capital.

[Carol Massar]

Rick, how hard is it though, that.

[Liz Ann Saunders]

That when clients are like, but why.

[Carol Massar]

Would I want to get out of Nvidia when I've seen what they've been doing for how many years? Like, how tough is that? Because we constantly have conversations of people saying it's time to, you know, broaden out, back off the big tech, and then it's the big tech with so much momentum.

[Rick Royster]

Well, you're absolutely right. And it's a really hard conversation to have. And oftentimes we don't win it, but we want to make sure the client is cognizant of, of the risk and the choice that they're making. Yeah. And to be fair to those investors, they've been right by sticking with their concentrated position for the most part because the names that have driven the market higher have been the same ones here for a while and so many people have stuck with it and they are sitting on more gains than they might have anticipated.

[Tim Stenovec]

So let's go further into the retail trader because they've grown to about 20% of the US equity market today. I'm curious about sentiment trends, like the structure of this trend. How resilient are retail traders in an eventual downturn?

[Rick Royster]

Well, I think retail traders have been the ones leading the market higher and have been the ones buying the dips. And I think they were out, actually in many ways out ahead of the institutional buyers. And so I think you have a retail buyer that has strong hands and will stick through the market. So we'll see how it all plays out. But markets go up and down and retail investors will inevitably make some decisions in there that's best for them.

[Tim Stenovec]

People hear retail investor, they think about Robinhood, for example, your customer versus Robinhood's customer base. What are the differences there?

[Rick Royster]

Well, our customer is an incredibly thoughtful group of retail investors. First, they have access to what we think are the best investing platforms in the industry. Number two, they have access to the most robust research platform. We produce 35 hours a week of live education and training for investors. So they're making the most informed decisions. We also don't make them choose a channel, not only the leading digital app, but they can walk in and talk to someone they can call or phone and get their question answered in less than 30 seconds. We have a thousand professional traders that wake up every morning ready to answer the phone to help our clients trade. So I think we bring everything we can to help our clients be successful. And I think they are. They make thoughtful decisions that are best for their financial life.

[Carol Massar]

Now you guys have talked about one third of your clients are Gen Z. So talk to us about how you continue to bring them in. How do you defend them, keeping them in? What do you need to kind of do to serve them and keep them on your platform?

[Rick Royster]

So one third of our new to firm clients are Gen Z, which is between the ages of 13 and 28. We are having tremendous success.

[Carol Massar]

That was new customers, right?

[Rick Royster]

New customers. But we're having tremendous success with the young investor because we see through their eyes and we put all the weight and strength of our firm behind helping them live their best financial life and make the smartest financial decisions for them. We don't just say, hey, here's a platform, go for it. Certainly many want to do that and they can have at it. But we also stand behind every one of them. If they want access to our research, they want to talk to a professional. And in terms of where we're finding them, it's interesting. I went to our marketing department and said, hey, I don't see enough about our advertising to young people. And they said, rick, it's because you're not cool. And in the places where young people go. But we're.

[Carol Massar]

Did that hurt?

[Rick Royster]

It hurt a little bit. We're the number one followed financial services company on YouTube. Yeah, we're all over TikTok. We're on all these different places where young people are and they're attracted to the, to the breadth of the schwab value proposition and how different it is than other offers they see in the market.

[Tim Stenovec]

Well, speaking of what's out there in the market. Wait, go ahead.

[Kathy Jones]

Are you going to ask about crypto?

[Tim Stenovec]

No, not yet.

[Carol Massar]

Do you want to wait?

[Tim Stenovec]

Yeah, I want to wait.

[Public.com Advertiser]

All right, go.

[Tim Stenovec]

I want to ask about prediction markets.

[Rick Royster]

Okay.

[Tim Stenovec]

Because this is something that I think Gen Z wants and polymarket is back in the US it is certainly related to crypto.

[Kathy Jones]

Right.

[Tim Stenovec]

Carol, what role does Schwab have in prediction markets in the future?

[Rick Royster]

Well, I think prediction markets started out with financial services companies with the best of intentions. They wanted their investors to be able to bet on what was going to happen with the inflation report, what's going to happen with the job report, or what the Fed's going to do. And they realized that there's not a lot of volume and interest in those events in the general public, and that there's already ways in financial markets to invest around those activities. And then the election happened, and the volume in prediction markets skyrocketed, and these companies got a windfall of money. And then they said to themselves, well, a presidential election only comes one out of every four years. How do we generate this level of interest on more of an ongoing basis so we can see this windfall more regularly? And then they migrated from things that were tangentially related to financial markets to pure sports gambling. Because every Saturday and Sunday, there's lots of activities that the nation cares about. And now I think we're in a world where what's driving all the volume and prediction markets is pure sports gambling.

[Tim Stenovec]

So yes or no for Schwab getting.

[Rick Royster]

Involved, that's something we gotta keep an eye on.

[Tim Stenovec]

You're considering it?

[Rick Royster]

We're not actively considering it. And the reason we're not actively considering it is our mission is to make our clients better off in their financial life. 5% of people, and actually I read this on Bloomberg very early this morning. 5% of people that put money into a gambling app take out more than they put in in the first place. So gambling has proven to be a net negative contribution to your wealth. Now, it's fine if you use it as entertainment and you're doing it in a thoughtful way, but our mission is to make clients better off in their financial life and enhance their wealth.

[Carol Massar]

Does that then say to you that it's not a good idea in terms of the prediction markets and kind of mixing them with traditional investing?

[Rick Royster]

From my viewpoint, we want to do everything we can to put our clients in the best chance to grow their wealth. Right. And I think it's fine for people to gamble. People are going to gamble. Hopefully they do it in a responsible way. The thing I worry most about is the conflation between gambling and investing. If you're a young Investor, you got $10,000 in your account, you can move it easily between investing in a stock that over the long run is likely to go up over the course of your life.

[Kathy Jones]

Right.

[Rick Royster]

Or you can go bet on the Eagles game that weekend. I think that is not the greatest thing for the, for the retail investor.

[Carol Massar]

Speaking of gambling and perhaps gamification, crypto, where does crypto fit into all of this for you guys?

[Rick Royster]

Well, crypto has become an asset class that many people have their full confidence and trust in and they view it as a store of value.

[Kathy Jones]

Right.

[Rick Royster]

And on our platform we have lots of people engaged in crypto. Today. In fact, Our clients own 20% of all the ETPs crypto ETPs in our country. So our clients are big investors in crypto and for most people, buying exchange traded product is the right way to go because they're not looking to transact in bitcoin, they're just looking to get exposure to the price movements. Now, in addition to offering the etp, we will in time offer spot crypto. And we're confident that we've got clients that are sitting at digital native firms that have been long Schwab clients that we know want to bring those assets back to Schwab. And we're looking forward to being able.

[Tim Stenovec]

To do that this year. Next year, Next year still first half of 2026, that's where we're shooting for.

[Rick Royster]

And so far so good.

[Kathy Jones]

May, June.

[Carol Massar]

You have an idea?

[Rick Royster]

I'm not going to get that specific. I get slapped later by somebody.

[Tim Stenovec]

Well, last year, speaking of last year you sat in this chair. We were in San Francisco and we had a fun conversation about crypto. You made headlines. You said this was a year ago. I have not bought crypto now and I feel silly. You also said crypto crypto investors have been right and that you haven't been right. So update us. Have you bought crypto since then?

[Rick Royster]

I have not bought crypto. I have nothing against crypto. I can certainly see the case of it. If people believe it's a store of value, it is scarce and it could go up. I think the blockchain is something that is likely to play a bigger part in markets and therefore crypto can have some value around blockchain. For me personally, my investments are in assets that I consider to be productive assets are generating earnings or generating principal or interest. And that's where I focus my investment portfolio.

[Tim Stenovec]

It's interesting that you say that because when you said that comment to us last year in the middle of November, Bitcoin was that. And we were talking about bitcoin was at $100,000. Right now it's at about $104,000. So you look right by not actually.

[Rick Royster]

Getting in right then possibly bitcoin and crypto generally is going to go up, it's going to go down. Its volatility is something, its standard deviation is something like 50%. So we should expect wild swings. And for the right group of folks, they want to own it, they believe passionately in it and they should have it as part of their portfolio. For some investors, it's what they want to invest in.

[Carol Massar]

Private credit, private markets. How about that in terms of you think the role that that will play.

[Tim Stenovec]

In our retirement accounts, portfolios in our retirement accounts.

[Carol Massar]

How do you feel about that one?

[Rick Royster]

Well, you're a great private company. There's lots of great private companies in our country that have done really well. I think retail investors should be exposed to private opportunities. We would like to bring it to market in three ways. Number one, we access, we provide access to retail clients, to great alternatives, managers in private equity, private credit, venture capital, a lot of the names that you're familiar with. Second thing is, I think at the right time we would love to be able to offer passive exposure in a fund like structure to private markets. Just like in public markets today, you can go buy, you know, the S&P 500 index fund for and get broad representation of stocks. You should be able to do that in private markets. We'd love to play a role in that in the future. And then third, like you can buy individual stocks if you don't want either the active management or the passive exposure to the broad market. I think that marketplace for single security private companies should expand over time. And so those are the three ways we envision the market expanding. And we want to play a role in all three.

[Carol Massar]

Do we have to? Rob, can I get you 20, 30 seconds on elections and changes and environments and I think the midterms and what might happen next time at the White House. How does that fit into your thinking in terms of long term strategy for the company? Because we've had a volatile year a little bit.

[Rick Royster]

Markets have thrived through all types of administrations and changes in presidents and changes in the Senate and House and all of that. And so our message to clients is stay diversified and be invested and stay invested and have a plan for your financial life. And if you do those things, they'll navigate different ups and downs associated with different administrations. And that's our counsel for clients.

[Carol Massar]

All right, so appreciate your time as always and fun to be at your event.

[Rick Royster]

Always love seeing you here and I appreciate the commitment you both made to be here in Denver and be a part of the IMPACT Conference. Thank you.

[Tim Stenovec]

Well, hopefully we'll see you next year and more between now and then.

[Carol Massar]

Yeah, exactly. Rick Royster, President and CEO of Charles Schwab, of course, kicking off our coverage here at Schwab impact 2025. We are here in Denver. Rick, again, thank you so much.

[Tim Stenovec]

Stay with us. More from Bloomberg businessweek Daily Coming up after this.

[Carol Massar]

Bloomberg Businessweek is brought to you by Evolving Money, a podcast that explores how cryptocurrency is the next logical evolution of the financial system. The program investigates how traditional finance firms are integrating crypto into their operations now that Washington has begun to pass much needed regulations. Follow the podcast, which is sponsored by Coinbase. Wherever you get your audio programs.

[Public.com Advertiser]

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[Podcast Announcer]

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[Carol Massar]

YouTube I got to say, gains in the S&P 500 just want to mention since April have seen the US benchmark decouple significantly from its moving averages. The gap with the 200 day gap gauge widened to 13% in October. That's a level that's usually proved unsustainable in the past 15 years. Meantime, the index is now traded above its 50 day moving average of the longest since 2011.

[Tim Stenovec]

So everything is awesome.

[Carol Massar]

Everything.

[Kathy Jones]

I don't know.

[Carol Massar]

We're going to ask. She's shaking her head.

[Tim Stenovec]

Let's, let's get into it with Liz Ann Saunders. She joins us here at Schwab Impact. She's chief investor strategist of Charles Schwab. Everybody knows Liz Ann Saunders. How are you?

[Carol Massar]

I'm good.

[Liz Ann Saunders]

I'm so glad you're here again. Welcome to our cozy little event, 5,000 people.

[Tim Stenovec]

It's not cozy and it's not little, but we are happy to be here. It's a huge event. It was huge last year in San Francisco. It was huge before that in Philadelphia. You were, you were shaking your head when I was saying everything is awesome. Why?

[Liz Ann Saunders]

Well, it's, it's a bit of a tale of two markets. You've got cap weighted index returns and the lack of any significant downside, particularly since the April 8 closing low. But here's an example. The average member within the S and p just since April 8th has had a 16%, actually 17% drawdown. The average member within the Nasdaq since April 8th, when the Nasdaq's up 50, some odd percentage, has had a average maximum drawdown of 36.

[Carol Massar]

So the breath isn't there, the breadth.

[Liz Ann Saunders]

Isn'T there, but there's a lot of churn and rotation going on under the surface that you don't pick up if you're only looking at the index level returns.

[Carol Massar]

So do you think the pullback that we saw, which wasn't really much yesterday, but do you think it is? Are we starting to see signs where investors are kind of questioning some of the valuations that are out there, the spend and whether we're getting the return on investment on it? Tell us your thinking.

[Liz Ann Saunders]

I think the margin of error has, has narrowed a bit. There's obviously sensitivity whether it is diminution in return on invested capital, whether you're seeing pressure on margins. Obviously the concern about circularity of financing and the fact that so far that's a real thing.

[Carol Massar]

I mean we are kind of blown away. What feels like it's all in the family.

[Tim Stenovec]

Yeah. Here's $5 billion. So you can buy $5 billion worth of stuff from us.

[Carol Massar]

Right.

[Liz Ann Saunders]

You guys, Bloomberg had this incredible visual that I think made it on Michael Burry's post.

[Tim Stenovec]

We were talking about the post.

[Carol Massar]

Yes, yes.

[Liz Ann Saunders]

But it's. That is such a great visual. I've seen more simplistic ones of a, you know, a power strip with it with the plug plugged into the power strip.

[Carol Massar]

Yeah, but that's exactly true.

[Tim Stenovec]

Right.

[Liz Ann Saunders]

And I think, you know, the boom so far has been financed out of cash flows. It's been largely equity finance. But now you've got as to just pick up, pick on the Mag7 cohort. Mag7 free cash flow growth has gone from more than 60% year over year 6/4 ago to now 2/4 in a row of negative. And so you're starting to see more deals financed with debt. That's not necessarily a bad thing. It's just a different environment.

[Carol Massar]

But I do want meta an Alphabet.

[Kathy Jones]

Right.

[Carol Massar]

Didn't they just recently do it oversubscribe like there was lots of investor interest. But I do like. I don't know, Liz, what. We just have to keep an eye.

[Liz Ann Saunders]

On it or I think, you know, valuation is, is a tough one. I think valuations and I'm going to say this generally not just specific to AI stocks or Max 7. It's not a market timing tool. It's more, it's more a temperature gauge gauge than it is a timing gauge. It's almost an indicator of sentiment. There are times where valuations can get stretched and they can get more ridiculously stretched and the market still has a long Runway ahead of it. So I think it represents some of the angst that's coming into the narrative right now. But it doesn't necessarily pretend impending doom. It's just a, it's a cost saver AI and it boosts margins. So we had, we had the early focus solely on the hyperscalers and the chips and then more recently it's gone into the energy usage in the data centers. Now I think where you're actually getting meat on the bones in terms of productivity statistics, in terms of the beneficial to costs is, is the users of, of AI. And I think that is likely to continue.

[Tim Stenovec]

But then does it create this distort, disruptive element in our society as a result of those entry level jobs, those white collar jobs, those blue collar jobs that end up being completely eliminated? I mean, I know we're talking about a future that none of us can see, but we had an interesting conversation with David Weston last week and he was basically like, how do we have the, this payoff without the money savings from getting rid of all these employees basically?

[Liz Ann Saunders]

I think that we're in a moment of creative destruction, to quote Schumpeter. And that happens anytime we have a major innovation or we've shifted our economy from being an ag economy to industrial, industrial to innovation. And that happens. But ultimately new types of jobs are created. I actually think that companies that don't adopt AI are going to have more job losses. I think what we need to bring in is what AI doesn't yet provide and maybe won't ever. You know, the seas, creativity and culture and community and connection, context. So I think there's still, I still think I. Yes, it is replacing certain kinds of jobs, but I think it's replacing tasks more than it's replacing full occupations. But I think workers have to adapt to it and adopt it and bring it into their lives or they will be left behind.

[Carol Massar]

You know, I pulled up my phone because someone came up to us and Dwayne, who is a financial advisor, he's here and he said, you guys did something on AI.

[Tim Stenovec]

You.

[Carol Massar]

I did.

[Tim Stenovec]

You did something at an event and.

[Carol Massar]

We had somebody who showed how to use AI and you said, after that I went home and started playing, which.

[Tim Stenovec]

Actually this was the panel you did at this conference last year in San Francisco.

[Carol Massar]

No, it wasn't.

[Tim Stenovec]

No, I don't think so. Okay, well, it was something, but anyway.

[Carol Massar]

There'S a lot of stuff going. But, but what he said is he was able to ask questions, do analytics so much faster. It was accurate and he said it just took less time and I actually produced better returns for my clients, which was pretty cool stuff.

[Liz Ann Saunders]

It is a game changer. But the hallucination rates are still high enough. They're low single digits, but high enough that I think it was Gene Munster. He spoke right before me at a recent conference who, who said, you know, lemons are like an intern. They do a lot of the work for you, but you kind of have to check their work.

[Carol Massar]

Got to keep an eye on them.

[Public.com Advertiser]

Yeah.

[Carol Massar]

Next six to 12 months. What do you think the investment environment looks like?

[Liz Ann Saunders]

I think these bifurcations that have pervaded the economy, even the inflation data and obviously the stock market, I don't see a convergence to any significant degree. I think you're going to still see those bifurcations, whether it's from a capex perspective, AI or non asset owners versus non asset owners, high income consumers versus low income consumers, tariff impact goods versus non tariff impacted goods from an inflation standpoint. And then obviously all those stations. What I would watch for that may be interesting is is we could have a situation where if some of the mega cap names, some of the leadership names continue to have some sort of pullback phase, watch what the rest of the market does. I don't think it's going to be extreme as late 2022, but what was interesting about that low in October of 2022, relative to the low prior to that in June of 2022, is that when you had the real crush, there was greater participation under the surface. That's what you want to look for.

[Carol Massar]

We will do that. Liz, thank you. So always great to see you. Same here. Chief investment strategist at Charles Schwab.

[Tim Stenovec]

Stay with us. More from Bloomberg Businessweek Daily coming up after this.

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[Carol Massar]

Can't wait to get to our next guest. We're gonna have a lot of fun with him. Omar Aguilar. He's CEO and CEO of Schwab Asset Management. We're just talking about just how much money is under the Schwab universe. We're talking about $1.6 trillion in assets under management.

[Tim Stenovec]

Omar joins us here on site at Schwab Impact 2025 in Denver. Good to be with you again. How are you doing?

[Omar Aguilar]

Very well. You know, can you believe this is the 35th year we have done impact? And for me it's 14 years. It's just unbelievable.

[Tim Stenovec]

Well, let's talk about this year because as we were chatting ahead of this interview, you made, you made the joke. I wish we could just end the year right here because it's been a good year. It's been a good year. But what does that portend for the next two months?

[Omar Aguilar]

It's been great for investors. It's been great for investors. You actually see this. I would probably say there were many points throughout the year where we all wish things were actually going to be different. And I don't think anybody anticipated, you know, that we're going to be at this stage, you know, so far into this year, you know, from the beginning of the year, the uncertainty around administration to liberation day to recovery, to you know, the rise of AI to the economy, the consumer, all the way to where we are now. It's such, such has been a ride that I think investors have taken advantage of, of.

[Carol Massar]

You know, I was thinking about your background and I just want to lay that what you've got 25 years of investment management experience in equity markets, you've seen a lot of cycles. And I know, I think I often reach out to you guys to ask you about this. What do you make of some of the recent stress that we've seen? Omar, whether it was concerns about credit, some of the regional bank issues. Again, we've heard different stories about whether or not credit concerns were something that might linger for a little bit. Then there's the private credit market. So how do you see it and do you see it at all impacting kind of the tone of trade and activity on your platforms?

[Omar Aguilar]

Yes, it is, it is interesting because yes, I have seen a lot of cycles.

[Carol Massar]

I have to say we're just like.

[Omar Aguilar]

A good bottle of wine, you know, my gray hairs, you know, I'm taking pride of it. But, but yes, you know, it is interesting because you know what we, what I have seen historically is you actually go to the source of what is actually maybe the reasons why something cracks. There will always be in every single cycle, you know, areas of risk that are what we call idiosyncratic. That's just a fancy word. But you know what that means is that there will always going to be things that will happen that will make people nervous. And we just need to understand whether it's systemic or is just isolated to certain area. Interesting enough you mentioned about, you know, the particular. The credit market. You know, the credit market has been incredibly resilient since 2008. And I think when you look at the current, even the high yield market, you know, there's not, is not as junky as it used to be. You know, I remember back in 2005, 2006 or 2001 and 2002, those were periods where you will really feel that there was a lot of Delinquencies, there was a lot of risk, there was a lot of uncertainty around them. When you look at it today, you know, the delinquencies are growing, right, but not outside of the norm. What you will have in this part.

[Carol Massar]

Of the cycle, why do you think that's not happening?

[Omar Aguilar]

Well, a lot of that has to do with corporate, corporate America. You know, their balance sheets are fairly, fairly strong. And the amount of leverage that you see in corporate America has is basically to the lowest in many decades. So what that actually means is that yes, companies that are taking excess leverage to stay at risk and they're more risky in the way they manage their business, you know, they're clearly more at the risk end, but the majority of America, it's actually pretty solid in terms of how they manage their balance sheets. And in fact, a lot of the reasons we were talking about, you know, in other forums about the reasons why tariffs have not been having the impact as big as it has been is because profit margins have been very, very benign and have been, not been affected as much.

[Tim Stenovec]

So does that mean that it's only a matter of time before we actually see inflation as a result of these tariffs? When these companies say we're not going to, we're not going to pad the impact anymore with our, with our healthy profit margins, we're ready to pass these on.

[Omar Aguilar]

Well, we're already seeing some of that. We're already seeing two things. One is we're already seeing companies that are, they're not going to have a choice but actually pass through those increasing prices to the consumers. You know, we have seen those companies that have the biggest, you know, opportunities and the biggest, widest margins. They are, they're already good. But there are ones that are getting a squeeze and squeeze. We already see some of that already in the early parts of this earnings season. The second part that we are serving is consumption, you know, consumers. And the demand destruction started to happen. You're starting to see a little bit in terms of like, you know, airlines and the tickets. And you know, you see that actually on my way here for the first time, the plane was not full. That, that, that was unique because, you know, for the entire year, you know, you always go there and it's actually big, a big chunk of it. So you can see a little bit of that consumption starting to just get affected by it.

[Tim Stenovec]

This happened to us last month on our way back from Los Angeles. The person at the gate said, this is crazy. It's been full pretty much until now. The flight was empty. Heading Back. Yeah, again, it's an anecdote. Hearing it from airlines yet.

[Carol Massar]

But, but airlines have been so smart about keeping those planes packed, right. And so to me it seems like a clear indicator. I know I said you seen a lot of cycles. But, but I think about your background. Lehman Brothers, Merrill lynch, these are firms that are no longer around, you know, post gfc the great financial crisis. So I guess I always try to think, you know, what are we missing in an environment where so many people are like it's okay, it's okay, it's okay. And I'm like what, what are the possible risks do you think for investors in this environment?

[Omar Aguilar]

Well, we, we have seen and actually we saw this in the last six weeks in. If you, if you look at the performance of those companies that did not, that do not have positive earnings, negative earnings companies in small and mid cap sectors, they outperformed by almost 20% in a short period of time. So what is called the junk route. And in many cases the concern is that this component of excess goes into areas that goes like that and that volatility is not healthy. You know volatility, when you have something that is exciting, extreme valuations, they're still generating earnings but you know that is there multiples away ahead. It is normal and it's healthy. And in fact we, I tend to do this to clients and advisors here to say hey look, some volatility is healthy. You know, you don't want a straight up market. I think the exposure to momentum, it's one that I have seen in many cycles, it blows up. You know, it goes very quickly up and it just blows up very quickly. It doesn't have to be all the cancer. So the concern we have now is that there is too much momentum in the market or still and it needs to be somehow corrected.

[Carol Massar]

Is it the trade momentum?

[Omar Aguilar]

It is, it is beyond just the air trade. You know, the air trade, you know, if you look at it, you know a lot of that is, is being represented in CapEx. So the capital expenditure from majority of companies has translated into AI and those companies are generating flows. Not, not all AI companies now they're tapping debt markets, they're tapping debt markets. And you at the same time you're starting to see that there's companies that are spending on capital that they're not seeing the returns, they're starting to just being questioned about their capital expenditures on their roi. So I think some of that it's healthy, it is the right thing, not all is going to be the same and I think to me that is a good thing for that consolidation. A little of those pieces will actually come to break.

[Carol Massar]

But if there's a blow up, is it the thing or is it something else? Maybe in terms of risk?

[Omar Aguilar]

Well, you know, I think it is just generally market because the concentration, the concentration risk is the one that worries me the most. You know, if you think about until this moment, you know, only 30% of the companies in the S&P 500 have outperformed the index. The rest have underperformed.

[Carol Massar]

Right.

[Omar Aguilar]

So you can actually just feel how that translates into, you know, significant amount of rebalancing that needs to happen for this to continue. And again, going back to where you said this is repeated in the past, you've seen it was energy at some point. It was, you know, consumer discretionary at some other point. It was tech back in the 2000. So this time, even though it's not the same as with back there because companies are generating free cash flow still, you know, you feel that there's going to be some rebalancing that needs to happen.

[Carol Massar]

Who do we have to talk to to get more time with you? I'm just going to put it out there. We want to talk more to your people so we get more time with you. Omar, thank you. Always, always appreciate it. Omar Aguilar, He's CEO and CIO of Schwab Asset Management.

[Tim Stenovec]

Stay with us. More from Bloomberg Businessweek Daily Coming up after this.

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[Tim Stenovec]

Yesterday on the plane, yeah, I'm writing my intro, Kathy Jones, and I'm like furiously oh, I got some stuff to talk about because there's a flight to quality happening right now.

[Carol Massar]

I like that you did that.

[Tim Stenovec]

And then today I know it's basically like, oh, erase the whole intro. I know the flight to quality that we saw yesterday exactly. Isn't happening.

[Kathy Jones]

I don't know.

[Carol Massar]

Decent, maybe data today.

[Tim Stenovec]

I guess that's what it was. But does that change the narrative? I thought yesterday changed the narrative.

[Carol Massar]

What is the long term narrative?

[Tim Stenovec]

Let's see what Kathy Jones has to say. She's chief fixed Income strategist at the Schwab center for Financial Research. She joins us here on site at Schwab.

[Carol Massar]

She has to figure out the longer term narrative.

[Tim Stenovec]

I thought, I thought yesterday was kind of this turning point with this flight to quality. We saw equity sell off. There was this chorus of Wall street executives who were like, okay, not so fast. What did you think?

[Kathy Jones]

Yeah, it certainly felt like the stock market was getting a little, you know, yippee.

[Tim Stenovec]

But that's what the president said earlier this year. Yeah, but he's about the bond market. He said, yeah, yeah, as you know.

[Kathy Jones]

Now it's their turn, the stock market. And so, you know, we had a decent bid in the bond market, but it wasn't huge. You know, in times past, if you had a really good sell off in the stock market from elevated levels, you get a big jump. And we didn't get a big jump.

[Tim Stenovec]

Why didn't we?

[Kathy Jones]

You know, I don't, I'm not sure that the bond market has a lot of room for longer term yields to go down absent a very big change in the economic outlook.

[Carol Massar]

So there's a floor, you see.

[Kathy Jones]

Yeah.

[Tim Stenovec]

Is a big change in the economic outlook if the Supreme Court says, sorry, IPA tariffs. Yeah, those are, those are, those are not legal.

[Kathy Jones]

Yeah, I don't think that has a.

[Tim Stenovec]

Big impact on the billion that could go back to companies and consumers. We have, yes, I do, trillions in.

[Kathy Jones]

Terms of the bond market growing and is, is a fairly small drop in the bucket. And you know, then how, how fast does that actually get back to somebody's pocketbook for spending? But you know, in general the economy seems to be chugging along great. Okay. It's not great for everybody, but in aggregate it's good enough. Inflation is stuck at 3% and kind of edging higher. Where, where do we go from here? If you've got inflation at 3%, maybe moving up at a 4%, 10 year yield, you know, that's, that's equilibrium. Right now we need something to change.

[Carol Massar]

And do you think it's going to change?

[Kathy Jones]

I think in 2026 we'll probably get enough slowing growth and some, some easing and inflation that will see yields come down. But I think the market was just way over its skis expecting the Fed to cut over and over again. And it is very difficult to forecast all the time. But now between tariffs off, no data, policy shut down, policymaking shut down, you know, I think the markets just kind of, the bond markets kind of just go, whoa, we're, we're pretty well priced. Let's just sit here and wait for things to happen.

[Carol Massar]

Well, so then does that increase the chances, Cathy, you think of the Fed doing having a policy misstep here?

[Kathy Jones]

It's certainly a possibility. But I think my, my impression that I get from Powell and from many of the other members is, look, we're back to this navigating on a cloudy night thing, right? We don't have information, the path ahead isn't clear and we've taken a couple of steps. We're not restrictive anymore. So now we pause and we wait and see what Happens, we go slow.

[Carol Massar]

I'm a sailor and I've navigated at night, and it can be kind of not so great. You can hit a rock or you could hit something because you just don't read something correctly, or things can be smooth sailing.

[Kathy Jones]

Yeah.

[Carol Massar]

So is there a chance, though, that I don't like? I think so many people are shocked that. That the economy is still growing and we're kind of doing all right. And the market continues, the equity market, to hit highs. Not necessarily what everybody was predicting a few months ago. But I just do wonder what's the thing we could be missing?

[Kathy Jones]

Well, right now, financial conditions have been very supportive.

[Liz Ann Saunders]

Yeah.

[Kathy Jones]

And I think that's another reason the Fed can kind of wait. They're saying, well, we're. There's no evidence that the level of interest rates is holding back the economy. People can borrow as much as they're housing still. Yeah, maybe. But I mean, you know, even housing starting to kind of recover, these prices are adjusting. So, you know, what is the thing. Thing that gets us. It's never the thing you're looking at in your face. Right. It's the thing you don't know. I'm worried about the buildup of debt, you know, behind the scenes, and the shadow banking system.

[Tim Stenovec]

Private credit.

[Kathy Jones]

Yeah. To some extent. We know that the quality isn't great there, and we know that some. Some firms are struggling.

[Tim Stenovec]

So how would, how would a crisis like that in private credit manifest?

[Kathy Jones]

You know, I think the. The issue is who's lending to the private credit folks.

[Tim Stenovec]

Don't the banks lend to the private credit folks?

[Kathy Jones]

Yeah.

[Omar Aguilar]

So.

[Kathy Jones]

Right.

[Tim Stenovec]

What's their exposure?

[Kathy Jones]

Well, we don't know, you know, because private credit is private. You know, it's hard to know the quality of the assets on any given day.

[Carol Massar]

Your face is really telling. Are you concerned that they still. Exposure by the banks is a lot more than we know.

[Kathy Jones]

I think the banks, you know. No, I think the banks are. The major banks are fine because against their will, they've been forced to hold a lot of capital since the Basel rules. And so I think the banks are okay, but it does get to be sort of a cascade.

[Carol Massar]

Right.

[Kathy Jones]

You know, one thing leads to another leads to another. A lot of interwoven lending takes place and there's hidden leverage. And that's where you worry about things starting to change. I don't, I don't have any.

[Carol Massar]

I didn't mean to put you on the spot. I just.

[Kathy Jones]

No, I don't have any particular. Like, this guy's gonna blow up story to tell. I just, these are the ways in the past we've run into trouble. Somebody gets over leveraged, asset prices get out of whack, people are overconfident, confident, and then things change.

[Public.com Advertiser]

Right.

[Tim Stenovec]

So it kind of brings us back to the Fed and how the Fed works in an environment such as this, in an environment where it's not getting much data. We did hear from Lisa Cook this week. She said she sees the risk of further labor market weakness as greater than the risk of inflation will pick up. Chicago Fed President Austan Goolsbee said he was more nervous about inflation. Who's right?

[Kathy Jones]

Yeah, we'll say we'll find out.

[Tim Stenovec]

I find out when we reach our destination.

[Kathy Jones]

Yeah, you know, I'm more in Goolsbee's camp right now. Although the labor market is clearly softened, some of that is supply side. Right. So we got the ADP numbers today as a positive number. Who's to say that that number isn't consistent with equilibrium in the labor market?

[Tim Stenovec]

So are these numbers accurate now? Because.

[Kathy Jones]

Well, ADP is as accurate as we can get right now. Yeah.

[Tim Stenovec]

But when we used to get government data, we used to get the ADP numbers on, you know, the day before, a couple of days before.

[Kathy Jones]

Right.

[Public.com Advertiser]

Before.

[Tim Stenovec]

I don't even remember this world. Yeah, we get them earlier.

[Kathy Jones]

Yeah.

[Tim Stenovec]

And then we'd get the numbers from the government and they would oftentimes not even be close to one another.

[Kathy Jones]

Yeah. And that's true. I think part of that is ADP is private sector only. They, they can include government workers. So there's that discrepancy. And you know. Yeah, their surveys are different, but it's all we've got to go on. So we, it looks like that they're picking back up a little bit. And that's good news. The ISM figures, factoring figures were okay today with prices paid, continuing to climb.

[Tim Stenovec]

But then you have these fast casual restaurants coming out and saying, hey, we're not seeing the young consumers come in and spend 15 bucks on a lunch, forgive me, slop goal. But that's like what they're called now because they're feeling squeezed.

[Kathy Jones]

Yeah. And that's the, that's an indicator. Yeah, that's the issue of the economy's working well for some and not well for others. And, you know, we've seen problems in the car loan market, usually subprime borrowers running into trouble. I am concerned about the agricultural sector.

[Carol Massar]

Right.

[Kathy Jones]

Really hard hit by tariffs. And, you know, it's not just farmers or agricultural businesses. It's their lenders. We have banks that lend in that sector as well. So these, these are pretty good sized parts of the economy. But we've got then the capex spend wealthier consumers continuing to spend and that in aggregate is adding up deposit growth.

[Carol Massar]

When does I keep talking about this quote. I know, I don't know rich European or somebody who just said, you know, I don't want to be a rich person in a poor country, I don't want to be a billionaire in a poor country. When does the lower rung of the K. I mean I think we were all shocked about the SNAP benefits and how many Americans are getting assistance when it comes to food in the world's richest country. So when does that ignoring if you can, even the social issues but the economic costs too of that and so when does that come home to Rooster? Are we seeing that with government debt?

[Kathy Jones]

I don't know. Yeah, we've spent, you know, we've run up a lot of government debt on different things.

[Tim Stenovec]

Right.

[Kathy Jones]

Many things to just sort of fill the gap. And that's been a positive. But you know, it's always about the jobs. Right. People are okay until they lose a job.

[Carol Massar]

Yeah.

[Kathy Jones]

So that's why the unemployment rate is so crucial to watch. And of course we don't really have that. We have now the Chicago Fed putting out their estimate, which is helpful.

[Carol Massar]

Right.

[Kathy Jones]

That Last one was 4.4%, a little bit above the last one we got from the BLS. But 4.4% is not a high unemployment rate. Historically we used to think full employment was around 5. Right. So you know, it's going to, if there's going to be a problem, it's going to be because people lose their jobs. That's usually the way to happen.

[Carol Massar]

It's as simple as that. I mean, not so simple if you're losing your job, it's a big cost. Kathy, so great to have this chunk.

[Liz Ann Saunders]

Of time to spend with you.

[Carol Massar]

Thank you so much.

[Kathy Jones]

Thank you.

[Carol Massar]

Kathy Jones, chief fixed income strategist over at the Schwab center for Financial Research right here with us on Schwab impact 2025.

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