Navigating the 'Funky' Market Environment (With Helene Meisler)

KATHY JONES: I'm Kathy Jones.

LIZ ANN SONDERS: And I'm Liz Ann Sonders.

KATHY: And this is On Investing, an original podcast from Charles Schwab. Each week, we analyze what's happening in the markets and discuss how it might affect your investments.

Well, hi, Liz Ann. Once again, a little bit of volatility maybe in the markets. Of course, now it's less about tariffs, and it seems to be more about other topics. I think the budget proposals, I guess, is the topic du jour. And markets are, not surprisingly, reacting to rising deficits and possible lagging effects of the trade war going into effect. So what do you make of the state of things right now?

LIZ ANN: You know, Kathy, I suppose we could view this through a positive lens in the sense that maybe the wattage is being turned up in terms of the spotlight on things like the deficit and debt. To what end, we'll have to see both in the short term as it relates to the budget bill working its way through or not.

But as we've talked about so many times on this pod and various things over the years that you and I have written about that, you know, the investor class I think cares very deeply about this topic. We get asked about it all the time, but it didn't seem to be of broad general interest. It hasn't appeared to be something that constituents tend to vote based on. So maybe some good comes out of the spotlight being a little sharper on this now.

But I think, you know, as we're taping this, we saw pretty decent reversal in the equity market and a move up again in bond yields and concerns about the 20-year bond auction. I'm not going to weigh in on that. That's your bailiwick. I'm obviously going to ask you about it. But I think that that sent some shivers … the equity markets way. And I continue to think to a large degree the Treasury market does hold the keys to what the equity market does. And it's not really so much about level in terms of whether it's the 10-year yield or the 30-year yield, but the "why" and, I think, the speed of moves that tends to matter.

I also think that, and this is something that our guest on this episode, Helene Meisler and I talked about, what also, I think, matters in terms of equity market behavior is not just the triggers, seeming triggers on a particular day, often being trade-related announcements, but what the setup was going into what some of those announcements might be. An example being, I think, the setup in early April with the kind of crescendo weakness that we saw in the immediate aftermath of the April 2nd tariffs culminating in that intraday low on April 9th that, for the S&P, had brought it into bear market territory. We were already there with the Nasdaq and the Russell 2000. But the setup was one of really washed-out sentiment and a stock market that had gotten technically very oversold, and breadth was really washed out. So the setup was one where you got a positive catalyst, and you had that contrarian setup that allowed for sort of that V-shape move higher, and then you have players like retail traders really being dominant in this kind of market environment, and that can pick up speed.

But I think now the setup, coming into some of the volatility we're seeing this week and concerns about the deficit and debt and bond auctions and the move back up in yields, was one for the equity market where, although I wouldn't say it got to the mirror image of where we were in early April, but back into overbought territory from a technicalist perspective, sentiment that reversed, maybe not to extreme froth, but probably some complacency and breadth that had improved significantly. So I think the setup was such that you get some sort of negative catalyst, and I think that the downside risk can happen a bit more quickly than if the setup looked like something that was the case in early April. So again, listeners listen on because Helene and I talk about this in the sit-down that I had with her, but I think that's an important way to think about the equity market. We've got, you know, mercurial decision-making happening from a policy perspective, and that can be a volatility driver—but trying to really gauge of how significant an impact it's likely to have on the equity market, I think the setup of where we are technically and from a sentiment backdrop and a breadth backdrop can help frame the speed of moves or the magnitude of moves based on some of those headline-driven triggers that happen in the market.

So you've had a busy week so far. What are your thoughts on what's happening in the bond market? And if you don't touch on it, don't let me forget, I want to ask you one more question, but I want to just have you give a lay of the land in terms of what we're seeing in yields and how that ties into the budget wrangling.

KATHY: Sure, well, yields continue to just march higher, and the yield curve continues to steepen with long rates rising faster than short-term rates. And it has been, to a large extent, fueled by the budget considerations in that the way things are proposed, it looks like we're going to add anywhere from three to five trillion dollars to the debt over 10 years. And that of course is not necessarily a level that the United States can't service, but it adds to years and years of deficit increases. You know, since the year 2000, we've been doing this and adding to the deficit and debt levels.

But I think what's unique about this time frame is that, first of all, it's not even really under the guise of balancing the budget. There's nobody even pretending that this is not going to add to the debt level over time.

LIZ ANN: Not to mention these aren't spending cuts. This is just a lower rate of spending increases.

KATHY: Yeah, exactly. And so, you know, the market knows this. I mean, you can go on TV and talk about it any way you want to, but you know, the market is going to be attuned to what's actually happening. People like to look at the numbers.

Yeah, on top of it, of course yields are rising around the world. So bond yields around the developed world are moving higher. And Japan is the one that really stands out because here's a country that had massive amounts of debt on the public balance sheet and has loosened the reins, loosened its control at the long end, and those yields are just shooting higher. You add in the fact that when you have a high debt level, you have to issue a lot of bonds. And we've kind of picked fights with some of our biggest creditors—China, and now we've sort of offended Japan. And so, you know, that doesn't make for a good mix, right? You're sort of discouraging having a close working relationship with the people who hold most of your bonds. And that is not probably a positive thing for having them buy the bonds.

And having said that, look, you know, we are the United States. We got this downgrade from Moody's recently based on the trajectory of deficits and debt and our unwillingness in Washington to deal with it. But having said that, look, you know, the U.S. is still a huge economy, lots of assets. It isn't a question of "Are we capable of servicing the debt?" It's "Are we really willing to acknowledge it and deal with it?" And once you sort of break that trust level, that becomes a negative, and the market's going to just price in a higher yield to entice them to hold that debt, and that's really where we are.

So in my career I've rarely worried about the level of debt on the bond market. I know there's the whole story about bond vigilantes and all that, but it never has, when you look at it really over any length of time, been a huge factor because we are the U.S. And we have the world's reserve currency, and we are a wealthy country that can service the debt. And that's never been in doubt. This is the first time, I think, when there is a considerable amount of doubt about what our intentions are in terms of the budget longer term. And I think that level of doubt, or that level of uncertainty, is adding to the upward moving yields. And this is not going to get, you know, housing affordability to be improved. It's not going to make the cost of car loans go down. So a lot of the goals and ambitions of the Treasury secretary that he's expressed, this is kind of moving in the opposite direction.

So tough time right now to be looking at policy and looking at markets and trying to figure out what the exit strategy is here. That is going to be costly to somebody one way or another.

LIZ ANN: Right, so my question for you is, I'm pretty sure we've talked about it multiple times on this pod, the idea that neither of us expect that we're likely to see, whether it's China or Japan or any other large holder of Treasuries, literally or figuratively wake up one day and just dump all their Treasuries. They'd be aiming the gun squarely at their own foot. But … so a lot of foreign entities have represented what I guess could be considered a price insensitive buyer of Treasuries in a world where they were getting lots of dollars in because of our trade deficit, and they had to put that money to work short term in a safe place, so they were somewhat price insensitive. Even if they're not dumping Treasuries, the absence of some of that price insensitivity from buyers, does that then in turn mean there's more power in the hands of the price sensitive buyers? Is there validity to that theory?

KATHY: Yeah, I think that makes a lot of sense. You know, again, you don't want to get too carried away with the gloomy story. But I think that if we are moving to a multi-currency world, if we are moving away from globalization to deglobalization, by definition, we're agreeing to a weaker dollar and less influence, right? And so you can't have one without the other. So if we're moving in that direction, then yeah, it's going to be harder to entice the price-sensitive buyer into the market because they'll eventually, or presently, be looking for alternatives, other places to put the money. And so, yeah, I think there is some validity to that.

All these things, I do want to emphasize though, all these are like … I hear all the grand theories about what things are going to be like in 10 years, 20 years, 30 years, 50 years, whatever. And it remains to be seen. So I don't like to extrapolate the current environment 20 years into the future. But I do think for the next year or two, or three or four, if this is the direction we're going to continue to pursue, then yeah, we're going to have a weaker dollar, and that's going to put upward pressure on yields, and we're going to have investors finding other markets to access.

And in fact, one little tidbit that came out this week is that U.S. corporations are increasingly issuing bonds in euros.

LIZ ANN: Just multinational companies that have business over there?

KATHY: Yeah, yeah, they're choosing instead of the largest liquid, you know, corporate bond market by a long shot in the U.S., they're issuing in euros in the European markets, A, because yields are lower, so that's an incentive. B, because they think the dollar is going to go down, so that helps as well. It could always hedge, but I think they think there's a little bit of an advantage there.

But also, we're seeing liquidity and size improve in the European markets as an alternative to the U.S. So you will find issuers and buyers go to other markets if they feel that it's a better spot to be in from a point of view of value, liquidity, outlook, protection, all those things. So I think you're onto something there, at least for the time being.

LIZ ANN: Well, you just taught me something with regard to companies issuing bonds in euro. I had not read about that. So I'll have to keep an eye on that.

KATHY: Yeah, it's a recent development.

So Liz Ann, you mentioned our guest today. Why don't you tell us a little bit more about her?

LIZ ANN: Sure, so it's Helene Meisler. I've known Helene for a really long time, several decades.

She has been using technical analysis to swing trade the market for more than 40 years. She began her career at Cowan & Co., was the first ever market technician at Goldman Sachs, and managed equity money with that technical tilt at Cargill's Financial Markets Division.

And now she writes, and has been for a while, a daily column at TheStreet.com. She posts a ton of great charts and just a lot of just fun content, including, you know, pictures of food she's made at the holidays and other stuff on Substack and on X.

Her handle on X is at @ChartFest1, and I'll link to her Substack and her social media and the show notes.

LIZ ANN: Hi, Helene. I'm so excited that you are joining us here today. These days, most of our communications are via social media platforms. But I think through other channels, we've known each other for a long time. I'll have 40 years in this business next year. So I'm actually in my 40th year.

How long have you been doing this? Is it less than me? More than me? About the same as me? I can't remember.

HELENE: I have you beat by a few years. I started in '82.

LIZ ANN: All right. I started in '86. All right. So I want to start somewhat big picture, given the long duration that you and I have had in this business. It's obviously been, I'll use a real technical term here, of which I'm sure you're familiar, it's been kind of a funky market environment, especially in a year like this, following what was, at least on the surface, a very strong year last year. We know what the drivers of volatility have been this year with the trade war. But as you think back over your 45 years or so of doing this, is this similar to any period in the past? Is it completely different? How much historical context can you put into play when thinking about these markets?

HELENE: That's a great question. Because I sort of tend to shy away from looking at markets and thinking, "Oh, here's an analogy." Because it's never the same. And somehow or another, every time you see someone do an analogy, it always seems to end in a 1929 crash. I tend to shy away from that. So I think one of the things that's changed drastically in the market, not just this year, but overall, let's say in the last decade, is how persistent markets get on the upside and on the downside. Like even when you're coming … I mean, I know everybody thinks the markets only go up, but even when you're coming down, there are times where you get a short-term oversold, and you should really bounce, and gosh, you can't even get a bounce.

Whereas 10 years ago, you would definitely have gotten that bounce, and that bounce would have lasted four, five, six days.

LIZ ANN: Now, what do you think accounts for that? Is that a function of the mechanics of the market, the sort of rise of quant-based trading or algo-based trading? Is it retail investors having more power? What do you account for that persistence angle?

HELENE: I think it's the passive investing. Because you can see that it started, it started, started, and the more … I think passive crossed over 50% sometime in the last two years. But we were having the active coming down while the passive was going up, and you can almost see the point where both started to turn. That's about the time that you really started to get such persistence in the market. So you know, now it's just a matter of one more than the other.

LIZ ANN: Let me stay on that. I want to pull a thread on that. And for any of our listeners that are new to the business or new to the pod, when, you know, probably most people know what we mean by passive and active, but we're talking passive is index-type vehicles where you're indexing to, say, the S&P 500®. And then active would be funds, money managers, that are actively making selections. But what I find interesting is that the growth in terms of the exchange-traded fund space has been greater in active ETFs, ETFs standing for "exchange-traded funds." So is that something that you follow, of the new interest in active ETFs, which at the beginning of what ETFs were, that was almost an oxymoron?

HELENE: You know, I have not followed it that closely, but what I do notice is, for example, I like to follow the breadth of the market. And when you start to read the list of stocks making new highs and new lows, it's just filled with ETFs as opposed to individual stocks. You know, so for example, if I'll just pick a stock, Nvidia makes a new high.

You have Nvidia on the list, you have the 1X Nvidia ETF, the 2X Nvidia ETF, the 3X Nvidia ETF. It's sort of like one stock accounts for so much more in terms of statistical analysis.

LIZ ANN: Right, for listeners, the 1X, 2X, 3X would be leveraged exchange-traded funds, in this case on an individual stock, like Nvidia.

HELENE: And you know, when it's not just Nvidia, you've got Tesla does it, Apple, you know, and so to me that has changed a lot of what we do because obviously if instead of getting in terms of number of stocks making new highs or new lows, you'd normally just get one name, and now I can get four or five all based upon that one name. And so I think that that may sort of account for some of the persistence, some of the overextension that we tend to get, whereas you tend to get into support, and then you go a little bit lower. Whereas you used to bounce off support, but now it's, a lot of people, to me, the conspiracy theorist is like, "It's all a manipulated market." I'm like, no, it's not manipulated. It's a function of how the market works now. 

LIZ ANN: So speaking of bouncing, what did you think of, were there interesting characteristics to the bounce that occurred intraday on April 9th when we got the announcement from the Trump administration of a 90-day delay in what they were calling reciprocal tariffs? How would you define that bounce, particularly given how extreme it was on that day in particular. I think it was a double-digit percent intraday swing, which was, I think, record breaking.

HELENE: Yeah, I don't know if it was record breaking. It may have been, but we also had maybe not an intraday swing, but we had those kinds of wild rallies in October of 2008 as well. Maybe not quite like that. Heading into that week, I had been looking for some kind of a panic capitulation in the market, and we just couldn't get it. We just kept getting to the point where maybe you'd get 87% on the downside in terms of volume, or 88%, or you'd get, intraday, you'd get over 90 and then, you know, and then we'd rally into the close, and you never really got what I considered capitulatory until the Friday before that. We'd finally gotten it. And so for my purposes, we'd been selling off at that point since late February, mid, really mid-February.

LIZ ANN: Mid-February, yeah, February 19th, yep.

HELENE: And we got that little bounce in the middle of March, and then you came down again. And so technically speaking, we should have gotten some kind of a panic low. And we couldn't. And that Friday before that Wednesday, we finally got over 90% of the volume on the downside. And so for me, now it's time to start looking for, we got a little panic. We're starting to look for the bounce.

And so did I expect that kind of a bounce? No way. But to me, the setup was there to get it. You'd been sliding for so long, and you'd finally gotten sort of the last vestiges of those holding on to say, "I'm done." And so I think that's kind of where we were in that cycle.

LIZ ANN: And I want to ask you about sentiment conditions at that time too. But before we get to that, let's sort of finish this thread here. Where do you think we are now, given the significant move up since that intraday low on April 9th? Are we, in your books, clearly in overbought territory or maybe not quite to the extreme that you would normally see and therefore expect a bit of a retracement?

HELENE: Short-term, we're overbought, but on an intermediate-term basis, I have us getting overbought at the end of this week.

LIZ ANN: Predicated on a continued rally through this week, I assume.

HELENE: My work doesn't really work that way. It doesn't really matter. Basically, even if we start selling off this week, the window remains open for us to keep rallying a little bit more. And then it just, for my purposes, it gets tougher starting after Memorial Day because now you don't have the wind at your back on an intermediate-term basis. You're going to need more of a correction than a day or two here or there in order to keep pushing higher with any oomph. Now, what I look for, not just in terms of an overbought condition, I will look for some failures or any other indicators rolling over. 

The aforementioned stocks making new highs. OK, there were 170 stocks making new highs over a week … on that Monday a week ago on Nasdaq. We have not been able to get more than that since, despite Nasdaq pushing higher. So if I get to the end of this week, and I still can't get over 170 new highs, that's not great. It tells you stocks really are tired.

OK, and I do some other little calculations. I look at the new highs versus stocks making new lows, and I do a whole indicator based on that. And currently, that's at a lower high. And so if that can't achieve a higher high come Friday, that's another sign that we really are losing that upside momentum. And so those are some of the things I'm looking for. 

I haven't seen that sort of rolling over indicating stuff on the New York Stock Exchange yet. I've only started to see it on Nasdaq, and it's very early. And then I will tend to look at sentiment. And we already see in terms of the put-call ratio, where people, if you will, are actually putting their money where their mouth is, the 10-day moving average has gotten extremely low in terms of the total put-call ratio. It's now already under 80, which tends to be on the low side. I consider under 85 getting a little low, so under 80 is really low.

LIZ ANN: Now, do you look at the overall put-call ratio or just equity-only version of it?

HELENE: I think I look at six or seven different put-call ratios. 

LIZ ANN: OK, so all of the above.

HELENE: So I look at the total. So what I've just quoted you is the total. I look at the equity. The equity had two readings last week in the 40s. So that's already getting quite low on its 10-day moving average. It's not quite extreme yet, but it may get there by the end of the week. I look at the put-call ratio on the VIX and the put-call ratio on ETFs and the put-call ratio on indexes. I could go on.

Anyway, so I'm looking at that. Now, in terms of other sentiment readings, I like to use some of the surveys. Everybody seems to love AAII. I'm not a big fan of it. I like AAII when it is confirmed by others.

LIZ ANN: Right, and by the way, let me jump in, AAII, we've talked about it a lot on this program, so regular listeners probably know, but it's American Association of Individual Investors. I think they've been doing their weekly survey since the mid-1980s, if I'm correct? 

HELENE: I think '87. And so, you know, they probably, back in the '90s, had a plethora of respondents. Now they often get maybe 300. And their respondents skew old, and I can say that because I am old. They skew over 60 years old. And I just don't feel that you get a great representation of the average investor anymore there.

LIZ ANN: I agree with you, and I think it often, there was often the case that you see a stark difference in what AAII suggests about sentiment and even what market action suggests. I just did our internal call this morning and had a chart in there pointing out that whether it's baskets like retail favorites or the meme stocks or non-profitable tech, seemingly proxies for that younger, retail-trading oriented, suggests a very different sentiment backdrop than what AAII suggests. So I agree with you. I think that there is an age differential. So are there any sentiment indicators that do pick up that younger cohort?

HELENE: I like the Investor's Intelligence[1] as well, because it's slow moving, and it's been around since the 1960s. So it has been through a lot of iterations of the market.

LIZ ANN: And is it still just newsletter writers, or is it a broader categorization now?

HELENE: I think it's newsletter writers, but they may be using Substacks.

LIZ ANN: Oh, got it. OK. So a newer version of what we think of as newsletter writers, right?

HELENE: But the other one I find has been incredibly helpful is the National Association of Active Investment Managers. What happens with them is they are, first of all, they're active managers, not passive, and they are surveyed on Wednesday morning as to, not what they think of the market, but what their current exposure is to the market. And so it's not a survey in that respect because I'm not just getting your view. I'm hoping that your view is being reflected in your exposure.

LIZ ANN: So it's a behavioral sentiment measure. And I think it's so important always to point that out because there are at times big differences between what the attitudinal measures of sentiment suggest and the behavioral measures. It's similar to within the economy. Consumer confidence and consumer spending can be diametrically opposed. So you really do need to not just listen to what they're saying, but watch what they're doing.

HELENE: Exactly. Or even if you take the AAII poll, they're always so bearish, and yet their exposure sits at 66% in equities.

LIZ ANN: Right. Yeah, yeah, I point that out all the time. AAII also tracks the equity exposure of their members. And I remember, if you remember, at the mid-year 2022 low, you got to a record high percentage of bears and a record low percentage of bulls at that time, yet equity exposure of their same members was only down a percent or two from an all-time high. So there was no confirmation in terms of, at least that source of sentiment for what they were doing and what they were saying. 

HELENE: It was no different this time. And I would point out to everybody who's dying to be contrary all the time, I would point out that the bears topped 60% in late February. So if you wanted to be contrary in terms of AAII, if you want to be contrary, you had to sit through the 20% decline because they were bearish from mid-February or February 25th or something like that. 

LIZ ANN: Well, given where we are now, have the bears been converted?

HELENE: That is exactly what I'm waiting for. I have said, I don't think we have complacency. I think what we have now is hope, and it's hope that everything will work out. So I don't think we have converted everyone. What I am looking for again, at the end of this week, in order for me to start looking for more significant downside based upon my overbought indicator, like just being overbought is not bearish, but you need overbought with negative divergences and too much bullishness. And right now, for example, we currently have more bears than bulls. I would like to see if we can flip that. So I don't have to get to an extreme where everybody's in the pool, but I have to see that the bears have given up. And I feel like I haven't really seen that yet.

LIZ ANN: So you're an expert technician. You've had decades of experience in understanding how technicals come into play and breadth and sentiment. And I agree with something you said earlier that's, essentially, it's always different this time. There's always different drivers of the market. That's why I think it's kind of silly when I hear people say, you know, the most dangerous words are, "It's different this time." And I think it's always different this time. You know, for 40 years, every cycle looks a bit different, and the drivers of why the market does what it does. And maybe you'll come back and say, "Well, it's really not that different," but we're so driven by policy announcements right now, oftentimes via a social media post from the president. And we can see what those types of announcements can do, like was the case with that, I think, 13 percentage-point intraday swing from the lows to the high on April 9th.

How do you as someone that is so embedded in your technical background bring those exogenous things into play? Or doesn't it matter? It still manifests itself in certain behaviors within the market and triggers that you pay attention to. But that was one of my biggest curiosities about your work coming into this discussion.

HELENE: I have an expression when people ask me, "But what about …," and then they give me some piece of news, and I tell them, "Mute the news, mute the news," because the indicators, for me at least, should be guiding you, and somehow or another, we finally got that panic before that Wednesday reversal on that Friday before, but think about how many times we came to the edge and we couldn't get there. And I kept waiting. I kept telling my subscribers, "Just wait, we're going to get the panic." 

LIZ ANN: Right, so it's not so much the news. You focus on the setup for when a turn could happen.

HELENE: Right, and so again, I'm focusing on what might set us up for a turn. I don't think, you know, all of a sudden, because we're overbought on Friday, all of a sudden next Monday we head south. But I do think that if any of these indicators set up as we head into Friday, what I would then say is we could set up for a rocky June. In other words, you might, you know, you're sort of at this point, you're almost three quarters of the way through the month. So you're, you know, maybe you get a little chop, chop, chop, chop, chop. But if these indicators I'm looking at start to roll over, and my sentiment gets just this side of a little too happy, I think you set up for a much tougher June than most people are anticipating.

LIZ ANN: And would that manifest itself in weakness again in what have been at times the highfliers? Magnificent Seven, tech, tech adjacent, AI, AI adjacent, whatever categorization you want to use. Talk a little bit about the last several months in terms of underneath the surface of the market, those leadership shifts away from momentum and tech and tech-related to the more classically defensive areas and back. So talk a little bit about your perspective on within the market, the kind of leadership or lack thereof at times.

HELENE: You know, sometimes you can tell, and there is no statistic on this, this is just a matter of paying close attention to what's being chatted about. But you can tell when sentiment on technology has changed. Most people generally spend most of their time, I'm going to say, relatively complacent about tech. And you know, Magnificent Seven are OK, and they go up, and so forth and so on. And every once in a while, they'll start slipping as they did in January and February. 

First, you may remember, first it was Microsoft, then it was Nvidia, then it was the semis, and then eventually they got to Apple, and they got to Meta and Google, and you can start to see people start to get a little concerned. Maybe tech is not where we're going to be anymore. First of all, they always come back to tech. I started out my career at Cowan & Co., and we were the technology research people then. Like all the big houses had a technology analyst. Cowan had a PC analyst, a semiconductor analyst. So I sort of always look at tech anyway, because that's where I started in the business. 

But every once in a while, you can see that the sentiment has really turned negative on technology. And I guess in this case, if I wanted to use your news point, we were looking at tariffs, and semiconductors are sort of at the heart of all of that. And so you can understand how the negativity got there. But to me, whenever sentiment gets that negative on tech, it's time to take a look at tech. Aside from that, most of the time, tech to me is pretty neutral to up.

Last year, think we got a little too overcooked on the semiconductors last summer, and that's how come the semis then went nowhere for a long time. But that's just how I tend to look at tech. So in terms of what could be most vulnerable coming down on the other side in June, I don't have a real strong sense. If I had to guess, you'd get a correction in tech. I don't think you'd get a collapse in tech.

LIZ ANN: Inclusive of the Mag Seven? Which is not all tech, you know, that veers into consumer discretionary in the case of, you know, Tesla and Amazon.

HELENE: And I don't know, shouldn't, I mean, Costco is one of the highest movers there. And no one ever calls it a Mag Seven stock, but somehow or another it moves with the Mag Seven.

LIZ ANN: You're so right about that. The moniker was attached at the time to the seven largest stocks, and it's just kind of stuck. And there doesn't seem, because there's no one at the helm from a rebalancing perspective. No one owns that label and can say, "OK, it's time to knock this one out and bring this one in." So you're absolutely right. Who knows? It might just be a moniker that ultimately fizzles and we move on to the next new shiny object.

HELENE: You know, if you ask anybody who was around during the Nifty 50 to name what stocks were in the Nifty 50, they can't name what stocks. You know, everyone knows, OK, maybe it was Avon, and it was, you know, I don't even remember what … Xerox, IBM, but you know, there was no official list. Just like I'm not sure that there's really an official Mag Seven list. And so I would say in terms of what would need a correction, I have some work I do on the semiconductors, and they look to me like they are going to be so overbought by early June. And so, you know, they would need a correction, and I'll bet somebody out there can tell you, "Oh you know, seasonality, and June is generally not a good month, or July is generally not a good month." So you know, if you wanted to put that together, you could make a story.

But I say that the semiconductors would be overbought. They wouldn't be, you know, it wouldn't look to me like they're dire, but they would need a correction.

LIZ ANN: I want to ask one final, somewhat-big-picture question specific to this unique period of time, and then we'll close out. I like to try to find notes of optimism when we close out these segments because everything seems so dour these days. 

HELENE: Haven't I been optimistic?

LIZ ANN: You have. You're always … you're always a joy, Helene. So let's just veer for a minute into the bond market and the dollar because particularly during the downturn and what may have triggered, we all assume, the administration to do a bit of a reversal, at least with the delays announced on the so-called reciprocal tariffs, was while you were in the corrective phase, and in the case of the Nasdaq, the bear-market phase for equities, you were also seeing the spike in bond yields, meaning bond prices also down, and the dollar was weakening. Not what you would normally expect for a country like ours, that was more emerging market like in terms of the behavior of those three specific things. So what were your thoughts at that time, and how do you think about, from a technical perspective, what's going on both in bonds and the dollar?

HELENE: So if you take a step back and look at the bonds, they've been in the same trading range for, what, two and a half years, I think? Maybe it's three now since, I want to say, late 2022. And yield sort of ticked out on the upside for like a month, and they ticked out on the downside for like a month. But mostly we've been between 4% and 4.5% on the 10-year.

For the life of me, I'm not sure I see us … that changing. I just, you know, I feel like if we fall out of it on one side, we're going to sort of like get sucked right back in on the other side, and the same thing. It just looks to me like bonds are in a trading range. And maybe that's why stocks don't really care today about ticking over 5% on the 30-year or, I mean, do home buyers care? Home buyers care.

So the economy may care, but right now stocks, they're sort of ignoring it. But when I look at the chart of the bonds, that's what I see is just this wide, I don't even know if you consider that a wide trading range, but I just see a big trading range there. Because let me tell you, Liz Ann, I take a look at the utilities, and they are now pushing up near highs. I take a look at the REITs, and they're not collapsing.

And these are all groups that tend to be interest-rate sensitive. So even they're ignoring the bonds right now. And the other thing I guess I would say is you asked about technology and whether people hate or love it, but I would tell you there is one group that is so hated that I don't think, seriously, I'm not sure I could even get my mother to buy a drug stock right now. And if I think about how drug stocks and staples and utilities and REITs and how they tend to act when bond yields go down, they're all acting OK. I mean, all right, drugs don't act great, but I think they're going to get better. But they're not acting like interest rates are going to 10%. 

And the dollar, think, I should go back to that. I think the dollar is bottomed for now.

LIZ ANN: And what would be the driver for some reversion back higher? Aside from technicals, or maybe it's all technicals.

HELENE: Well, you know, I never am very good with narratives, but I can tell you that we got a little carried away with American exceptionalism in January, and then we got a little carried away with no American exceptionalism in March and April. And so maybe you just get a little reversion to maybe "America's OK, and maybe the rest of the world is OK." 

LIZ ANN: Yeah, the pendulum swings too far in each direction, which is part and parcel of markets.

HELENE: Yeah, you know, so, you know, we're just sort tick-tock, tick-tock, like this. So that's just kinda how I look at it. But I do think if you had to look at something, I think June could be a more volatile month than we've seen in the last six weeks.

LIZ ANN: Do you think we could take out the early April lows?

HELENE: If my indicators roll over …

LIZ ANN: OK.

HELENE: And they would have to roll over, and I would have to see sentiment more bullish than it is. 

LIZ ANN: Right, and by the way, let me just interject there. I always feel like I wanna do this, because I get follow-up questions if I make a comment like that, and they'll say, "But you said it was bullish." Remember, sentiment at extremes is a contrarian indicator. So when Helene talks about sentiment getting overly bullish, that is more of a downside indicator, not an upside indicator. So just clarification there.

HELENE: Let me give you a little scenario, OK? Let's say we get a correction in June. I don't know, you know, maybe because, I'll even give you a little narrative, maybe because all those ships from China stop delivering things, and shelves start to get empty, and the economy starts to get a little questionable and whatever. And then maybe things get sort of back on track because the ships start coming, and this summer people start to feel a little bit better, and the market goes up, and then the fact that the market doesn't go down, and maybe we don't even go up, maybe we're just sitting around between 5,700 and 6,100 on the S&P. And then something happens in, I don't know, August or September, where by then I've got a lot of complacency in the market. I've got too many bulls. I've got indicators starting to roll over. Then I would have to say, we are looking quite vulnerable in the fall.

LIZ ANN: But then with vulnerability in the fall, at some point you get to oversold again. So I'm trying to bring it around to …

HELENE: You do, you do, you do. But let's just say you fell, I mean, I can't remember percentages that were up from the low, but let's just say you fell 10% in the fall. You don't think if we fall 10%, we're gonna get, "Henny Penny, the sky is falling" again? I mean, because it'll be so fresh in everybody's minds what just happened in the spring, that you'll come down, maybe it's a test of the low, but sentiment will get really bearish really fast. It won't take that long.

LIZ ANN: And maybe at that point you would get what I like to call the puke phase. Kind of like what you got in October of 2022, where you saw the washout again in attitudinal measures of sentiment, but you also had seen, you were seeing it in the behavioral measures of sentiment, too.

HELENE: Right, and maybe, like you talked about the economic indicators, maybe those economic indicators, the soft data that hasn't translated yet into hard data, starts to translate into hard data, so you get people getting a little more concerned. And again, "Henny Penny, the sky is falling." That's how you can get a 10% decline, which takes you back to, I don't know, where are we? Maybe like to 5200 or 5300, but you get down there, I can guarantee you sentiment's going to get super bearish again.

LIZ ANN: Yeah, especially when it happens in a fairly short time period after you not only suffered the first big leg down like we already did, but you get a sharp rally that maybe brings some complacency into the mix, and you sort of have to test that complacency again before you can really find a more sustainable bottom.

HELENE: You know, and I took a look at this wide breath thrust, which I never really did a lot of work on. But I was amazed at how many times after we got one, we got a leg down after that initial rally.

LIZ ANN: Oh yeah, no, it doesn't get trotted out as much anymore, in part because of just the makeup of the market, and there are so many more sort of hybrid type equities and to your point about single-stock ETFs and the leveraged version of them. I think it's maybe not appropriate to fully put that indicator on the shelf, but it's by no means a perfect indicator.

HELENE: Well, despite everybody telling us it is.

LIZ ANN: Yeah, it's been critiqued, I've seen on X, of "Anyone out there basing a definitive market case on this Zweig breadth thrust isn't paying attention." So it has its critics, and there's some validity to that. It's why even though I grew up in the school of Marty Zweig, I'm not out there putting it in every report when it flashes because I think that it's a bit of a gray area.

HELENE: Yeah, I noticed actually, I noticed that we had not one but two breadth threats in 2023. And I even wrote it up, and I said, "Look, we got a great rally off the first one, but then we had a 10 or 12% correction that summer." And I can guarantee you, I wasn't hearing about the Zweig breadth thrust when we came down that 10. So I think sentiment does have a tendency, especially if you've had the kind of decline we've had in the spring, I think it will have a tendency to get bearish fast.

LIZ ANN: Well, it's always fun talking to you and nice—I can see you, our listeners can't—but it's nice to see your face. And most of our communications, as I mentioned, are via our X feeds, but they're fun nonetheless. But I'm so thrilled to have you impart your wisdom. Thanks, Helene.

HELENE: Thanks for having me.

LIZ ANN: Hey, I wanted to put in a quick plug for Schwab's newest podcast, which is called Invested in the Game. It's a show all about golf, and storytelling, and the people who are really invested in the game of golf.

I've been known to play a few rounds, kind of poor rounds, myself, and I have had the great pleasure of playing quite a few times with our founder, Chuck Schwab, who is an extraordinarily good golfer, shoots regularly below his age. I most certainly do not.

But the company, Charles Schwab itself, has a long history, as many know, of supporting the PGA, the amateur game, and even golf charities. So if you like golf and you like podcasts, I am certain you'll want to check it out.

You can find it at schwab.com/TheGame or just search for "Invested in the Game" in your podcast app.

KATHY: OK, Liz Ann, we're headed into the long Memorial Day weekend. I hope you have great plans with your family. One thing, though, Helene mentioned a few things she was going to be watching. What about you? What do you think will be the key issues over the next week or so?

LIZ ANN: Well, we don't have major labor market data coming out, which I think should be on everybody's radar, especially as it relates to Fed policy. But you know, weekly claims, I think, continue to be important. So far, they've been relatively benign. We've had a couple of little breakouts on the upside, but that's something I'm keeping an eye on.

In light of the move up in yields, I think the housing data can be a bit of a tell. So we get home sales, building permits, home prices in the next week and a half or so.

I think we get the second read coming up on first quarter GDP. So as a reminder, the initial print was in negative territory, so any updates might be interesting. And then we get some inflation data via the Personal Consumption Expenditures Price Index, which is the Fed's so-called preferred gauge of inflation.

And then I think toward the end of next week, we get another update on University of Michigan, everything from consumer sentiment to inflation expectations.

How about you?  I think, do we get FOMC—Federal Open Market Committee—minutes in the next week, I believe, maybe?

KATHY: Yeah, I believe we do, although I can't imagine there's any big surprise coming. We've had about 17 people from the Fed speaking recently, and they have all said the same thing—which is they're just in "wait-and-see mode" and more inclined to not lower rates this year than they might have been just a few weeks ago. So I would say the minutes of the Fed meeting will be interesting. That's out on Wednesday the 28th, along with all the indicators that you talked about.

And then, you know, I'm keeping an eye on this march higher in global bonds. I think it's something that, as it gets going, it can be self-reinforcing. So I really want to keep an eye on that and see where we end up with that.

And of course, we all have eyes on Washington. We'll be waiting to see what our colleague Mike Townsend has to say when we finally get a bill that's passed.

So it's going to be another interesting week ahead, I think.

So that's it for us this week. Thanks for listening. As always, you can keep up with us in real time on social media. We both post regularly on X and LinkedIn. I'm @KathyJones—that's Kathy with a K—on X and LinkedIn.

LIZ ANN: And I'm @LizAnnSonnders on X and LinkedIn. Make sure you're following, for both of us, the real us and not our imposters. And you can always read all of our written reports. They always include lots of charts and graphs at schwab.com/learn.

And if you've enjoyed this show, we'd be so grateful if you would leave us a review on Apple Podcasts, a rating on Spotify, or feedback wherever you listen.

And we will be back next week with another episode.

KATHY: For important disclosures, see the show notes or schwab.com/OnInvesting, where you can also find the transcript.

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