Rate Cut Coming? Sectors to Watch

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.

LIZ ANN: So hi, Kathy. Well, lots of news again this week about threats to Federal Reserve independence, and the latest component of that is the president firing or attempting to fire or trying to fire a Fed governor, Lisa Cook. So just give us your overview on this next step in trying to wrest more control from the Fed and maybe what the parameters are around whether a president can fire a Fed governor.

KATHY: Yeah, Liz Ann, I … you know, I don't know the legal ins and outs of this. There does seem to be some question as to whether the president has the authority to fire someone at the Fed. It seems as if, from what I've been told, that this will probably end up with the Supreme Court. So it could take a while because Lisa Cook is pushing back and saying, you know, she's going to defend herself, and the president has no authority to fire her.

I think the deeper issue here, from a market perspective, is that this is, you know, another step towards the president trying to take control of what happens at the Federal Reserve. We know that he's already put a lot of pressure on Fed Chair Powell, everything from, you know, calling him dumb and name calling and telling him that, you know, he should be doing rate cuts, should have cut a lot by now.

And now this is, I think, being viewed as another step in trying to figure out a way to wrest control. And the issue is, A, that markets want the Federal Reserve and any central bank to be independent of the political pressure. Now we all know the Fed is a political institution. It was created as a political institution. People are appointed by politicians and etc. So people have political biases. But in the bigger picture, we like to believe that people who work at the Fed are really thinking independently about what's best for the economy and attaining the goals of keeping inflation down and keeping unemployment down.

So in this case, one of the wrinkles is that the regional Fed presidents come up this February. They're typically re-elected by the boards of the regional banks. And the view is that it's possible if the president has enough people who will take his direction at the board of governors that they will not re-elect those people at the regional banks, and they'll be able to put in people who are more amenable to the administration's point of view about rate cuts. 

You know, there's a risk here that this becomes not just about one Fed governor, but about greater influence and control from the White House over monetary policy. And what's troubling about that is obvious that, you know, politicians want interest rates to be low. They want to stimulate the economy. And they're not viewing the constraint of inflation as a big deal from their point of view. That's why the Fed was created as an independent institution. So more to be seen on this. It looks like it's going to drag out for a while. But a lot of things flying back and forth, a lot of legal issues coming up.

So far, for the bond market, the reaction has been relatively minor because I think the general view is that this isn't going to create a bigger problem, that that's still something that might be out there. But what we are seeing is a steeper yield curve, meaning long-term rates relative to short-term rates are high. And that difference is getting wider. And the reason is that you know, the Fed controls short-term rates. They've already indicated they're leaning towards cutting rates. So those are staying low, possibly moving lower. But longer-term rates are starting to drift higher, and that's because there's less certainty about what Fed policy looks like going forward, what inflation will look like going forward, etc. So that steepness in the yield curve, it's something that we expected coming into the year, and we think it's going to be a feature of this year.

But the risk is that those long-term bond yields really move up. And as investors demand a higher risk premium to hold them, to say, "Well, we don't know what you're doing, whether you're really going to fight inflation or not. And we need more yield to justify investing long-term." So the difference between five-year Treasury notes and 30-year bonds, say, is the widest it's been in a really long time. So that's what I'm keeping an eye on.

Right now, it's relatively well behaved from a flat yield point of view, but that steepening of the yield curve shows that market's a little bit nervous and could get a lot more nervous if, you know, depending on how things develop. But what about you Liz Ann? But what about the stock market seems to be just, you know, kind of flying along here.

LIZ ANN: Yeah, I think … and you mentioned some of what was in your outlook coming into the beginning of the year. One of the things that was in our outlook was maybe a continuation of, but a definitive sense that the bond market to a large degree was in the driver's seat for the equity market, and the specific yield that is most highly correlated to what the equity market does is the 10-year yield, and you're right things have been fairly calm there, and all else equal I think that that represents one of the reasons why you haven't seen much trouble brewing in the equity market. 

But I think that there's a broader answer as it relates to equity market behavior that spans just beyond concerns or lack thereof with regard to Fed independence. It's what in the recent past has been billed as the TACO trade, the "Trump always chickens out." But I think it's maybe better thought of using other kind of trader's language that has been used in the past, which is the notion of there being a put, you know, a Trump put, that it was something that was on full display, arguably, in the first week in April, in the immediate aftermath of the reciprocal tariffs being announced. You just saw a riot in the markets. You saw the spike in bond yields. You saw the plunge in the equity market. You saw the plunge in the dollar. 

And the action in those markets, individually and collectively, was the trigger for the, maybe not about-face, but the announcement of the 90-day delay. And that was expressed as such by the likes of the president as well as the Treasury secretary that, you know, was … I don't know if it was the word "yips" that was used, the market has the …

KATHY: … has the yips, yeah.

LIZ ANN: Yeah. So I just wonder, and I've talked about in the recent past that maybe we should think of both a Trump put and a Trump call, that on the other side of that, with calm in markets maybe provides that market-based support for the administration to continue to push ahead, whether it's regarding trying to wrest some control over the Fed, whether it's regarding tariff policy. And I think to some degree, the market may be in the mindset of "We're not going to step away from markets here" because there is that sort of embedded safety net of, if things do really start to unravel, and again, I think it would most likely start in the bond market and then potentially infect the equity market, that then there would be maybe a reversal in sentiment from the administration on how far they can go. 

So maybe that's too convoluted a way to think about it, but I think that whole notion of there being both a put and a call could be at play in the relative calm behavior. In addition, if you look at the specifics of the stock market and the rotations that have been happening more than just under the surface and leadership shifts, I think that has very much driven by expectations for easier Fed policy to come. That's been the provision of the lift given to small caps because they are more at the mercy of what happens in the bond market with longer-term yields, plus on the shorter end with what the Fed does. I think that that's provided probably the most direct fundamental support to some of this broadening out, equal-weight relative to cap-weight, small caps, which also means that if for whatever reason the Fed would start to back away from easier policy, which I don't know about you, I would think that that would probably take a really, really positive labor market report to shift expectations noticeably away from where the bias is right now, which is we'll get 25-basis-point cut in September. So is that your thinking as we head into next week regarding the labor market report?

KATHY: Yeah, I think you're right to point out there's a certain irony in all this, right? Because the Fed is poised to cut rates. Fed Chair Powell made that pretty clear at his Jackson Hole speech. We've heard from several members of the Fed voting committee that they're in favor of rate cuts, some even as many as two or three. And I think more irony is that the more the administration pushes on the Fed to lower rates aggressively, the more it could lift long-term rates. And that's the opposite of what the administration wants, right? 

So you don't want to cut rates and have long-term rates go up, and then you're sort of defeating the purpose here. So yeah, I think to veer off of the rate cut in September path that Powell laid out really would require a much-stronger-than-expected labor market report that we'll be getting pretty soon here. So, you know, it remains to be seen. Obviously, the data can surprise us in both directions. But yeah, I think right now the focus is on the softness in the labor market. The Fed has said, "Well, because we consider our policy restrictive, we have room to cut rates, even though inflation is still elevated. Because we're worried about the labor market." So unless we get a really robust report, I think we are due for that cut in September.

OK, Liz Ann, so now we've gone over that whole Fed thing again. Feels like it's all we talk about these days. So last week we had someone from my team, Cooper Howard, on the show and we talked a lot about municipal bonds. Now it's your turn to have someone from your team on.

LIZ ANN: Most people know Kevin Gordon. He's been on the show before. In fact, he filled in for me when I was on vacation in the latter part of July into early August. Kevin is a director and senior investment strategist here at Schwab, works very closely with me, more broadly with the entire what we call SCFR team, Schwab Center for Financial Research.

He's a frequent guest on CNBC, Bloomberg TV, lots of other podcasts. We do go on other podcasts, and we let our people go on other podcasts. This is the best one, of course, that we all do. 

So Kevin, thanks again for being here with us.

KEVIN GORDON: Thanks for having me. Always good to be back on.

LIZ ANN: It is, and one of the benefits of having a Schwabbie on as a podcast guest is … certainly in your case today, you had the benefit of listening to the conversation that I just had with Kathy. So maybe I'll start there. I'm sure you have some thoughts as well on whether it's the notion of Fed independence or what expectations might be, market reactions. So what are your takeaways from having listened to the 20 minutes or so that Kathy and I just riffed mostly on the Fed, which seems again to be topic du jour.

KEVIN: Yeah, it's really interesting. I am actually recording this from our office in San Francisco, and I'm out on the West Coast this week doing client events, and, you know, this news broke just a couple nights ago, and I was doing an event last night, and typically what is right on the front page of whether it's, you know, the FT or Bloomberg or The Wall Street Journal, pick your publication, it's typically not the focus of a conversation whenever I do a client event. It takes us some time to get to whatever that topic is, but it was right out of the gate, the first thing everybody was talking about. And rightfully so. I mean, I think that just the magnitude of this and, you know, it's an overused word, but the really the unprecedented nature of this, I think it warrants a lot of discussion. And yes, I did listen to what you and Kathy were talking about.

I think that what becomes really interesting, and Kathy started alluding to this, but sort of the mechanics and kind of the anatomy of the Fed moving forward, because you've got seven governors on the board, and then you've got five regional bank presidents that rotate, except for the New York Fed president, but that rotate onto the Open Market Committee, and that's the committee that sets rates. So what's interesting is that you could potentially now have this math situation going into next year, where depending on what happens after Stephen Myron's short term, I'm assuming he gets confirmed to be on the board for the very short term to fill Adriana Kugler's seat. 

And then from there, what happens with Lisa Cook, to Kathy's point, you could have a potential instance where there are more appointees from just President Trump. I wouldn't go as far to say maybe, I think it's still early days, just to say automatically that Governor Waller and Governor Bowman, who have already been on the board, will automatically just side with, you know, anyone who's more recently confirmed or who is going to be confirmed in not reappointing those five, you know, regional bank presidents. I think it's still too soon to say, but that's coming up by the end of February. And I do think that it has the potential to be more of a volatility driver just because of how much the Fed has come into sharper focus and how quickly this has happened with, you know, independence really coming into question. 

But it is going to be interesting just because the path of least resistance for rates, at least for the fed funds rate, does seem to be lower from here. But it's kind of "What does the magnitude look like at least next year?" And that's a really interesting thing to think about. I think especially now, you look at the start of the Fed's cutting cycle almost a year ago from now in September when they started with 50 basis points. Of course, we all know what happened, and you and Kathy talked about it with long-end yields moving higher.

And that was more due to a re-acceleration or at least a stabilization in the economy. You had the unemployment rate move back lower, you know, job growth rebounded, and that was really the reason for yields moving higher. This time, I do think it would be a stretch to say that we would have the same pattern in the labor market just because that cycle for labor has gotten longer in the tooth. The labor market is looking a little bit more tired. You are starting to see more cracks from certain indicators, which I know we'll talk about in a bit.

So it'd probably be a stretch to say that you get that kind of re-acceleration this time. And I think that if longer yields were to rise after the Fed starts cutting, whenever they do, that to me would maybe be a little bit more of a worrisome situation because I think it would be a little bit more based on that question around the strength of the institution of the Fed and how independent it is moving forward. 

Because you do need to keep in mind, and this has come up in my conversations in the past day, we do have to keep in mind if this is going to become more of a norm, not just for this White House or this administration, but moving forward, that does effectively politicize the Fed in terms of presidents being able to just appoint governors or remove them in their term. And that's literally the opposite of what the goal was, especially given these very long terms that the Fed governors have, that the seven governors on the board have.

So you know, I think it's, of course, it's one of those things where we have so many more questions than answers. This has to make its way through the courts, and we'll see how it plays out from here.

LIZ ANN: I thought about something when you were speaking, especially when you talked about what some of the client questions have been, and you and I talk about this all the time. It's such a great way for us to get a sense of what's top-of-mind when we do these client events and what the sort of tone and nature of the questions are. And I had an event, speaking event, last night that was a community speaking event. It wasn't a Schwab client event. So it was maybe a much broader mix of folks in the audience. And I had a somewhat surprising conversation just after the formal Q&A when it was just standing around chatting with a few people. And it was a conversation with a real estate agent who, I don't remember exactly how she phrased the question, but it was something along the lines of "Why wouldn't we just want, whether it's political pressure or not, the Fed to just cut rates yesterday, because the housing market is struggling, and why wouldn't they just want to bring mortgage rates down?" This was a real estate agent that didn't know that the fed funds rate has nothing to do with the mortgage rate.

It's most highly correlated to the 10-year yield. And Kathy touched on it, and I'll make the point again. Memories tend to be short, seemingly more these days. It was only a year ago when the Fed embarked on what was a fairly short-lived easing campaign with actually a 50-basis-point cut a year ago in September because of weakening in the labor market. And then they followed up with two additional quarter point cuts for a 1% total cut. But in that same span of time, almost exactly that same span of time, the 10-year yield went up a little more than 1%, and mortgage rates went up nearly one percentage point. So even somebody in the business of real estate not knowing that the fed funds rate does not directly correlate to the mortgage rate. 

It's similar … and by the way, I know this is a little bit of a tangent, but you and I talk about all this time. And I know the minute I start talking about it, you're going to know exactly what I said. But I took the opportunity last night, given how broad the audience was, to just explain how tariffs work and who pays them. And as I finished saying that, I could hear murmurs of, "Oh my God, I didn't know that."

KEVIN: Yeah. 

LIZ ANN: So though, that, you know, they're paid by the U.S. company importing the goods. So I know it's a tangent, but again, I think we sometimes make assumptions based on what our necessary knowledge is. We live, eat, and breathe this all the time. This is our job to, but I think sometimes we have to check ourselves by virtue of what we're hearing from clients, make sure that we are addressing the things that are most top of mind, but also understanding where there may be disconnects in terms of … just the knowledge and way things are communicated. So I'm glad you brought that up.

KEVIN: Yeah, I think it's important to highlight those, especially the mortgage discussion. And wow, I mean, what a conversation, first of all, what a question to be asked. But I think that this is important because in a lot of the conversations I have with my peers or just my friends, we're in that generation that has been … felt that we've been sort of locked out, for lack of a better term, of the housing market because of restrictions based on home prices or mortgage rates or a combination of the two.

And again, we eat, live, and breathe this all day, every day. But when you look at housing, it is not just mortgage rates that are keeping that pressure on housing. It's a host of other factors. A lot of this dates back to … even post-financial crisis, when we went into this significant under-building mode, and we were able to do that because there wasn't this screaming demand for homes. So the spread between how many homes were being completed versus how many were under construction, it completely flipped versus what it was pre-financial crisis.

That was an OK environment to live in because, again, we didn't have this insane demand for homes. Of course, that changed and flipped on its head when we went through the dark days of the pandemic. That led to significantly higher home prices, and it sort of blew out the homeowner-affordability index. There's a number of them that are tracked. But basically every single one showed the same thing: Because mortgage rates went up, and because home prices continued to rise, and because we had significant inflation, that was really weakening all of those legs of the housing stool. 

Now we find ourselves in an environment where, yes, mortgage rates have eased a little bit, and they've come down a little bit from their most recent high. They're still very elevated relative to the past few years. But I always stress that when we look at homeowner affordability, it's really not the mortgage piece that is the biggest driver of that. It can help at the margin for sure, but it's really the home price and the supply, you know, sort of dynamic that has still been plaguing most of housing. And supply has recovered over the past couple of years. We've been on this general … actually I would say, you know, since 2022, we've been on this improving trajectory, but it's been a little bit slower. But we're also now at a part of the cycle where labor, as I mentioned, is getting a little bit more tired. There's probably not a whole lot of demand to go into housing and to make a big purchase like that. So there's really only so much that a lowering of the mortgage rate, if that even happens, to your point about the Fed lowering rates and that not necessarily setting the mortgage rate. But there's a lot of questions as to whether that can even happen. 

And I know that housing is used as really this sort of central piece of the argument as to why the Fed should cut rates aggressively. But I'll just say this, over the past almost 10 years, if it's about 8 to 8.5 years, the residential investment component of GDP has not moved. It's been unchanged. It's been volatile, but it's unchanged.

In that time, of course, real GDP has accelerated, and it's moved up considerably. So for whatever reason, because of the unique nature of the cycle, and I would probably just point to that, housing has been disjointed from the rest of the economy. It's been sort of siloed and segmented and put at its own timeout zone. And that's not normal relative to history, but that's just the reality. So we have to consider the fact that housing is not acting as this traditional macro driver or forecasting tool as it has been in the past. I don't think it'll always be the case that that will remain. But I think we need to keep that in context, especially when people bring up the mortgage issue.

LIZ ANN: Yeah, and you mentioned real GDP—real incomes are also important, sort of the third leg of the housing stool. And now that you have some renewed upward pressure from an inflation standpoint that eats out of the purchasing power of your incomes, and that has increasingly become a bit of a drag on that housing affordability piece. And for our listeners that are interested in this subject, that the timing is good that we got on this topic because we will be writing a report that will publish not … we normally publish on Mondays, but it'll publish next week on Tuesday because of course we have the Labor Day holiday, and it's going to be all about housing, that Kevin and I are going to work on over the next few days. So keep an eye out for that. But in the time we have left, Kevin, I want to now shift to the stock market.

And Kathy and I just touched on some of the reactions on the part of her world in the bond market and our world in the equity market. But maybe talk a little bit about what you're seeing in the work that you've done and we've done on some of the rotations that are happening, some of the broadening out, a nice lift after a long period of underperformance in small caps, and maybe what the pillars under that have been and whether there might be legs to that portion of the rotation.

KEVIN: Yeah, the small-cap trade has really gotten, I think, the most attention. In all the media I've done in the past couple weeks and all the chats I've had with analysts and other strategists and our peers on the street, that's been sort of the focal point. And what I find really interesting is that it has been a really impressive run, if you want to use the Russell 2000 as your proxy for the small-cap universe. 

You know, quarter-to-date, over the past few weeks, that index has really gotten up and running. I will say, you know, breadth has accompanied it. So it's not just a few companies in that index or, you know, a few industries because it's much larger company-count wise than the S&P 500. But breadth has really accompanied that move. So it's been confirmed, if you want to think of it that way by the move under the surface of, of that index. But what I find really interesting is that it's still—even today, as we're having this conversation—it's still not back beyond its November 2021 high. So it hasn't made the, you know, I'll put in air quotes, that "round trip" that you want to see when a new bull market is confirmed. And a lot of this sort of has some hints of these head fakes to me that we've had in the past couple of years where I think about the Consumer Price Index, or the CPI report, last summer when the Russell 2000 just completely ripped after it, and everyone was sort of pounding the table saying, "It's the end of the bear market for small caps. This is their time to take the leadership baton." And that didn't happen.

And it's not to say that this is the same exact case this time, because I do think that an important differentiator between today and between that period last year is that forward earnings estimates and profit margin estimates, they've started to recover a bit for small caps. So there is a little bit of a fundamental reason as to why they're starting to get up and they're starting to move again. Plus, I would add, and I think this is one of the most important aspects when you look at different indexes or different classes within the equity market, the sector makeup really matters here. 

And when you think about areas like healthcare or financials or consumer discretionary, which make up a huge chunk of the Russell 2000, if those sectors are doing well, then that index will do well. It's just math. And those are a smaller portion of the S&P 500. So because we've had a little bit of this rotational trade over the past few weeks or over even just this quarter, it has, all else equal, sort of biased … it's helped and accrued to the benefit of small caps, and it's put that downward pressure on the large-cap indexes relatively speaking. I mean, the large caps have still continued to move higher. But I think that that has been sort of an important dynamic to keep an eye on, especially because, throughout earnings season, not just this past quarter, but the prior quarter, results have been great throughout the reporting season.

You've mentioned this a couple of times recently, and whether it's in reports we've written or in the media, but that earnings beat rate and the blended growth rate has continued to surprise to the upside. I think that has accrued to the benefit of the broader market, and telling us that with this tariff digestion process that happens, it's not going to be this sharp contraction in the economy at once. That was certainly the case in April, but because now we're phasing this in over time, it gives the market and the economy more time to adjust. And in that meantime, in that bridge period that we're in, earnings results have been relatively stable, and I would say surprising to the upside for a good chunk of companies. And I think that's been a benefit to the rest of the market that's helped that broadening-out trade.

LIZ ANN: One final question on some of the rotation, your thoughts at the factor level? So as many listeners know, certainly readers of our work, we have had very much a factor-based approach over the last several years, more so than a sector-based approach. And "factor" is just another word for characteristic. So it's a whole idea of making investment decisions at the individual stock level, or maybe groupings of stocks based on certain characteristics, and factors can span from balance sheet kind of factors to growth-oriented factors to value-oriented factors. And I think there's also been an interesting shift underway at the factor level. 

There are Schwab-monitored factors that we focus on on a day-to-day and a week-to-week basis. So what are some of the interesting … maybe in the sort of quarter-to-date time reference period, since you already touched on that, in terms of some of these shifts at the factor level.

KEVIN: Well, what I find interesting is actually if you want to keep it to the small-cap space, what has started to do a little bit better recently, and it's kind of an interesting way to think about it because it's a little bit of a case of opposites where the largest of the small have been doing really well. So it's not just the micro-caps or the really tiny, if you want to think of them as … they're not actual penny stocks, but the really, really small companies in the Russell 2000, there has been a bias towards some of the more highly valued companies or some of the larger ones within that index. 

So there is a little bit of a large-cap small bias, if you want to think about it that way, or a large in the small-cap bias that has done quite well. But I will say, you know, just thinking about this in longer term, you know, in the long term, over the past year or even couple of years, and we've emphasized this because, you know, markets have become so volatile and policy driven in many ways this year. I think it's important to keep in mind that what we have talked about as being high quality and just really strong, whether it's high interest coverage, companies that have a lot of money to pay relative to what they owe on their debt, or whether it's having a strong balance sheet, a strong cash position, high margins, so you can absorb some of the tariff pressure. That has been where you've been able to find the most consistent outperformance. 

And it's just the case now that it's now being sort of discovered in some of these other sectors that have been lagging for a considerable period of time. I mean, healthcare to me is sort of the standout for that. If you look at the healthcare sector relative to the broader market, whether you want to take it relative to the Russell 2000, whether you want to take it relative to the S&P 500, not too long ago, about a month ago, we were seeing that index and that sector hover near its lowest since the financial crisis. And for some indexes actually fell below that period. So there was just this massive pessimism for how much healthcare was going to suffer, whether it was because of pharma and potential tariffs, whether it's because of policy within the health and human services portion, a department of the government. But a lot of that is now sort of fleshed out, and it's now, I think, kind of on the other side, where people are starting to price and maybe a better fundamental backdrop. Not to say that healthcare is going to be this stalwart outperformer to come in the next year, but it's interesting now to see some of those factors now showing up in other sectors. And that's why we have that emphasis on factors, because you don't need to sort of feel that you need to live in a certain sector and say, "Well, I've got to be in healthcare and nothing else." It's if you're in, you know, companies or industries that have strong profit margins, you can find that anywhere. And that's been our main message and really, we think the most consistent way to find that outperformance.

LIZ ANN: As usual this has been fabulous. You're a wealth of knowledge. I appreciate you being willing to sit in the hot seat. You always do a great job, and thank you again also for stepping in when I was on vacation, so thank you.

KEVIN: Yeah, well we're glad to have you back. I'm glad that we get to do this now. Now it's my turn with you instead of my turn with Kathy last time. 

LIZ ANN: There you go, yep.

KEVIN: But it's been fun. I'm glad you're back. Glad you had a good time.

LIZ ANN: Thank you. Thank you. And again, let's plug the report that we have publishing on Tuesday, which will be on schwab.com.

KEVIN: Yeah, we don't have a title yet, but it'll be there, schwab.com/learn. Go to the market commentary page. It will be there on Tuesday, probably by the afternoon.

KATHY: Well, thanks for that, Liz Ann. It's always good to hear you and Kevin talking about the market. As we look ahead, what do you think investors should be watching?

LIZ ANN: Well, we're taping this in advance of the Fed's preferred measure of inflation, which is the Personal Consumption Expenditures price index. So that clearly is top of mind. The unemployment claims report that comes out every Thursday continues to be important, not just the headline number, which is initial unemployment claims, but the relationship that that has to continuing claims. That's been one way to judge or conclude that we're in this low-hiring, low-firing kind of backdrop. So keeping an eye on that. 

We get personal income and spending data. We got some additional sentiment, consumer sentiment, via the University of Michigan. We get S&P Global's version of the PMIs, which is Purchasing Manager's Index. Maybe the more popular are the Institute for Supply Management version of them, but S&P is starting to garner some additional attention. 

We get the Job Opening and Labor Turnover Survey, the JOLTS report, on job openings and layoffs and things like the quits rate. But the, you know, the big whammy, which we talked about as it related to expectations around Fed policy, would be at the end of next week, we get the all-important jobs report for August. And we'll have to see whether it corroborates the weakness that was in the July report, hopefully doesn't get much worse from there, or whether we have a surprise in the other direction. So that's what's on my radar. How about you?

KATHY: All those same indicators, particularly the labor-market related indicators, since that's what we're focused on in terms of policy right now. I'm also keeping a pretty sharp eye on the foreign exchange market. You know, the dollar has been soft. And one of the things that happened when this whole ruckus kind of exploded over the Fed is that the dollar sold off pretty sharply.

And that's an important indicator. It has been falling for a variety of reasons. One is expectations for the Fed to ease, and also tariff policy has sort of roiled the waters in terms of where trade is going and investment. But I think it's good to keep a close eye on it because it's oftentimes a good leading indicator of what market sentiment is. So we'll be watching that along with the data.

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

KEVIN: And I'm @KevRGordon on both X and LinkedIn.

LIZ ANN: And let me make a plug for Kevin's feeds. They're always great. So if you're not already following him, definitely give Kevin a follow as well. And as usual, I'm @LizAnnSonders on X and LinkedIn. My PSA every week is make sure you're following the actual Liz Ann Sonders and not one of the many, many imposters that I have.

And you can always read all of our written reports—they have lots of charts and graphs as do our social media feeds. You can find our written reports at schwab.com/learn. And if you've enjoyed the 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. Or how about this? Tell a friend about the show. And thank you so much to everyone who has reviewed the show so far. We see all the reviews, and we really do appreciate it. And we will be back with a new episode next week.

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