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WashingtonWise Investor: Episode 43

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Putting Inflation in Perspective

Liz Ann Sonders, Schwab’s chief investment strategist, joins Mike to explore what’s driving the current burst of inflation and to share her insights on the future inflation picture and what it means for investors.

On this episode of WashingtonWise Investor, Mike and Liz Ann Sonders, Schwab’s chief investment strategist, dig into where we are with inflation, including the root causes of the current spike in prices, where things are starting to ease, and what may lie ahead. They focus on the potential impact of job and wage growth on the economy and inflation as small businesses begin to reopen, bonus unemployment insurance ends, and more women return to the workforce. And they also look for areas of opportunity for investors, exploring the factors of growth and value. Mike also discusses the latest efforts to wrangle an infrastructure bill through Congress, an ambitious plan to overhaul the equity markets outlined by SEC Chairman Gary Gensler, and stepped-up efforts in the House of Representatives to crack down on big tech companies over anti-trust issues.

WashingtonWise Investor is an original podcast from Charles Schwab.

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MIKE TOWNSEND: These days, inflation is on everyone’s mind. We see higher prices at the gas pump and on the grocery store shelves. Last month’s increase in consumer prices showed the highest inflation rate in 13 years.

A survey released earlier this week by the Federal Reserve Bank of New York showed that consumer expectations of inflation have jumped even more significantly in the last couple of months. The survey found that consumers expect inflation to be 4% a year from now.

But is that right? Annual inflation hasn’t been that high in three decades. And since inflation is measured year-over-year, this year’s numbers could be artificially high, given that a year ago most of the country was in lockdown, and inflation seemed to be mostly confined to toilet paper and hand sanitizer.

Welcome to WashingtonWise Investor, an original podcast from Charles Schwab. I’m your host, Mike Townsend, and on this show, our goal is to cut through the noise and confusion of the nation’s capital and help investors figure out what’s really worth paying attention to.

Coming up in just a few minutes, I sit down with Liz Ann Sonders, Schwab’s chief investment strategist, to talk about how worried we should be about inflation, whether the White House’s ambitious spending plans will help or hurt, and whether there are opportunities investors should consider.

But first, a quick look at what’s making news in Washington right now.

There are two big stories I think investors should be following.

Number one is the ongoing, seemingly never-ending effort to find a bipartisan deal on infrastructure spending. Last week, President Biden ended talks with a group of Republican senators with whom he had spent more than a month negotiating over a possible infrastructure package. Just days later, however, another group of 10 senators—five Democrats and five Republicans—announced that they had reached a tentative agreement on a package of nearly $1 trillion for spending on traditional infrastructure like roads and bridges.

So what’s going on here? Well, there has always been a genuine bipartisan interest in infrastructure spending. Members of both parties recognize the need to spend a lot of money upgrading the nation’s roads, bridges, tunnels, and the like. They literally see it every day in their communities and hear about it every day from their constituents.

But there have always been two big stumbling blocks. The first is defining what exactly constitutes “infrastructure.” And the second is figuring out how to pay for it.

On the first question, President Biden, in his American Jobs Plan proposal, used a very expansive definition of infrastructure, including lots of money for roads and bridges but also money for climate change initiatives and even long-term care. Republicans, meanwhile, want to focus on just the roads and bridges part—so-called “hard infrastructure.”

And to answer the second question, President Biden proposed paying for his infrastructure spending with a corporate tax increase—but that was never going to fly with Republicans.

The agreement reached late last week by the group of 10 senators would focus on roads and bridges. And it would not have any tax increases. It would use some unspent money from last year’s CARES Act, combined with user fees and other mechanisms, to come up with enough money to cover the cost of the spending.

Will it work? It’s too soon to tell. President Biden has been in Europe all week and hasn’t really weighed in on the proposal. And members of both parties on Capitol Hill are waiting on more details from the group, whose leaders, Senator Kyrsten Sinema, a Democrat from Arizona, and Senator Rob Portman, a Republican from Ohio, acknowledge that they only have a broad framework at this point.

So expect a lot more detail in the coming days. There’s still a very significant chance that it all falls apart, that the 10 senators aren’t able to convince their colleagues on both sides of the aisle to support the deal.

But both parties are also doing their own political calculations here. Senate Majority Leader Chuck Schumer, a Democrat from New York, has said he would be open to a bipartisan agreement on infrastructure and then pass a second bill with the president’s more far-reaching proposals on climate change, social programs, and tax increases without any Republican support. Democrats could do that by using the budget reconciliation process, which would prohibit a filibuster and allow Democrats to pass a bill with a simple majority vote.

Republicans, on the other hand, are considering supporting the infrastructure bill and then betting that Democrats won’t be able to wrangle their progressives and their moderates into agreeing on a second bill.

What’s the takeaway for investors? Well, I continue to think that Congress will eventually pass a significant infrastructure bill, probably this fall, either with Republican support or without it. And that could present some investing opportunities.

The other important development for investors last week came from a speech given by SEC Chairman Gary Gensler. Speaking at a conference, Gensler said that the ongoing retail trading frenzy in so-called “meme stocks” has brought to the front burner a number of concerns about the basic structure of the equity markets. He announced that he has directed SEC staff to undertake a major review of equity market structure and come up with recommendations for changes that Gensler believes would increase transparency, reduce conflicts of interest, and benefit ordinary investors. Gensler pointed out that the last major overhaul of the markets was in 2005, when the SEC finalized a regulation known as “Reg NMS,” for National Market System. “Rules adopted 16 years ago do not fully reflect today’s technology,” said Gensler in his speech. “I believe it’s appropriate to look at ways to freshen up the SEC’s rules.”

Gensler went on to outline some of the issues he’d like to address—a list that made it clear that what he has in mind goes far beyond “freshening up” the current rules. He’s looking at fundamental changes to how the markets operate.

Gensler said too much trading was happening off the major exchanges—noting that in January 2021, only about 53% of all trading was done on the exchanges, with the rest executed through a handful of wholesalers via trading venues known as “dark pools.” Many of these trading firms pay brokers a fee to send them their customer orders—a legal practice known as “payment for order flow.” Gensler said he is concerned that payments for order flow create an environment in which brokers have an incentive to use the trading venue that pays them the most, even if that is not necessarily what’s best for the investor. He added that the off-exchange trading is handled by just a few dominant players and that the lack of competition is limiting innovation and increasing systemwide risks.

Gensler also said he wants to review the rules around what is known as “best execution”—the legal requirement that a broker ensures that the customer gets the most advantageous execution of their order to buy or sell a stock.

Finally, Gensler said the review would include an examination of whether trade settlement time could be reduced. Today, trades are settled in two days—a practice known in the industry as T+2. But Gensler said that the technology is available to get settlement times down to T+1 or even same-day settlement, which he said could reduce costs and risks in the markets.

In the end, Gensler’s request for a thorough review of the system touches on most of the fundamental elements of a trade in today’s markets—basically everything that happens from when an investor pushes “trade” on their phone or computer to when that customer gets back a message confirming the trade has happened. And that’s a lot. It’s going to be complicated, it’s going to be controversial, and it’s going to take a long time—we’re probably at the front end of a process that will take at least a couple of years. But the new SEC chairman has certainly laid out some ambitious goals that could eventually result in significant changes to how our markets operate—with the goal of making sure investors are getting the very best value for their trade.

On today’s Deeper Dive, I want to take a closer look at inflation. Investors have a lot of questions about how bad inflation could get, what impact it could have on the markets, and what they should do. So I could not be more pleased to welcome back to the podcast Schwab’s Chief Investment Strategist Liz Ann Sonders to help sort through what’s going on and to offer some ideas for investors. Liz Ann, thanks so much for joining me on short notice to dive into the inflation question.

LIZ ANN SONDERS: Oh, pleasure. I love your podcast, Mike, and I love joining you on your podcast, so I’m very appreciative.

MIKE: Well, thank you. Well, let’s begin by just talking about what inflation is. For investors of a certain age, the word “inflation” conjures up images of the 1970s, with gas lines and mortgage rates hitting 15 and 16% by the beginning of the 1980s, but younger investors have no experience with anything remotely approaching that. And what we’re experiencing right now feels like a kind of situational inflation. If you’re building or renovating a house right now, you’re no doubt aware of the recent sky-high prices of lumber and other building supplies. The average person has probably noticed price increases at the gas pump and certain items on the grocery store shelves. So is this inflation in the traditional sense, or is this something different?

LIZ ANN: So I think, first, in terms of the definition of inflation, especially for folks that are hearing so much about it right now but didn’t experience the environment of the 1970s, I think what’s missing in the debate that’s happening right now is there’s all sorts of varieties of, and forms of, inflation. And these days it seems like the debate is either we’re not going to have any, or it’s going to be ’70s style inflation. And there is a lot of room in between those two scenarios. I think your use of the term “situational” is very accurate right now because of a number of short-term forces that are very specific to the pandemic. I think the kind of inflation that people fear most, like we had in the mid to late ’70s, carried into the very early 1980s, is sometimes called the wage price spiral form of inflation or hyperinflation or stagflation. And that’s an extreme level of inflation that also came in conjunction with weaker economic growth. And what’s interesting about inflation is when we talk about it, whether we’re talking about short-term bursts of it or a longer term, more systemic periods, is we think of the drivers of it as quantifiable—we can look at things like wage growth, or in commodity prices, supply-demand imbalances.

But when inflation becomes somewhat out of control, like happened in the ’70s, it was as much a problem of psychology. And inflation is somewhat psychological, whether psychologically you as a worker start to demand higher wages, psychologically whether a company decides they’re willing to pass on those higher costs. And that’s where the spiral factor comes in; there’s a psychological element to it as well. And the net is we’re in a burst of inflation right now, but so far the conditions are not in place for that ’70s version of inflation.

MIKE: So if this is just temporary inflation, what are the key data points that you’re watching?

LIZ ANN: So I would start with some of the shorter-term impacts that are very specific to the pandemic that have really been in play, driving some of the traditional inflation metrics like the Consumer Price Index, Producer Price Index, Personal Consumption Expenditures, or PCE, which is the Fed’s preferred measure. And that’s just simple math. The term being used most robustly is “base effects,” because for a three-month period last year, during the worst part of the pandemic and the shutdown—basically, from March to April, April to May, and May to June—you saw three months in a row of plunging inflation, which means now a year later, we’re up against those comparisons. So the year-over-year percentage change is going to be not artificially biased higher, just mathematically biased higher. But of course, once you get into the June data, when inflation started to pick up again last year, those base effects start to diminish. So that as a force, recently, is set to wane as soon as a month from now, when we start to get the June data.

Then you’ve got the much-publicized supply chain disruptions, dislocations, supply-demand imbalances, as we open back up, especially on the services side of the economy. That’s more of a medium-term issue. In some cases, some of those disruptions are already healing. You mentioned lumber prices. That had been sort of a poster child of where we were seeing huge spikes, that people understood because it affected them more—they’ve come way down. Copper prices down. Iron ore prices down. So we’re already seeing some of those dislocations ease.

And then the semiconductor shortage—that may be a slightly longer-term factor, but that has led to short supply of new cars, which has led to massive price increases in used cars. That explained about 40% of these recent spikes, especially in a measure like CPI. That’s simply not sustainable because the price gets high enough that, in and of itself, it squashes demand.

And then there are lots of other long-term forces around globalization, productivity, demographics that, quite frankly, at this point, some are headwinds, some are tailwinds.

But it’s the wage piece of this—whether some of these wage increases are one-time resets or they move into that spiral mode. And then these other dislocations that are shorter term in nature. So those are effectively what we all need to keep an eye on in the short to medium term.

MIKE: Well, Liz Ann, in your recent media interviews and some of your client presentations, you’ve emphasized the point that both job growth and wage growth are key factors for inflation. The Fed has made is very clear that it is monitoring job growth because it’s the key factor, one of the key factors, at least, to determining when it might start tapering its bond buying. It’s interesting that the Fed is anticipating job growth when there’s so much in the media these days about how businesses can’t find enough workers, even though the unemployment rate is still way above where it was pre-pandemic. So can you give us some insight on what’s going on there?

LIZ ANN: Sure. So that is somewhat, these dislocations that we’re talking about, that are very pandemic-related. Now, some of the problem existed before the pandemic, which is the skills gap. So there are a number of job openings, even before the pandemic erupted, when we had, at that time, record amount of job openings. There was a mismatch in terms of the skills needed in those jobs and the skills possessed by those people that were unemployed. So that problem even predated the pandemic but got exacerbated by virtue of the pandemic.

And then, of course, you have the massive amount of fiscal relief that was provided. And what ties into this unique problem is partly the enhanced unemployment insurance, that for many folks, and it depends on how you calculate it, but economists have suggested that, you know, upwards of maybe half of people who are receiving that pandemic … that excess pandemic unemployment insurance may feel they’re in a better position taking that in, either because they are bringing in more money than either they were when they were working or anticipate they could if they went back to work. So I think that’s a factor that should start to ease. We already have about half of states that have expired those excess benefits in advance of the early September deadline. And for what it’s worth, the majority of states that have expired them early have seen a decline in filing for unemployment insurance. So that is almost the proof point that that has been a factor.

Then there’s the fact that women have dropped out of the labor force more than men. That may be a function of having kids still being schooled at home. If schools go back in early September, the rest of the states expire as the federal deadline, then we might start to see a loosening up here.

But the skills gap, I think, is a longer-term problem, and, ultimately, goes to rethinking to some degree of education around skills, but we could do a whole other podcast just on that subject.

MIKE: Well, we’ve heard a lot in the media about the job market for teenagers, and I have a real-life example of that market. My daughter graduated from high school last Friday, and just a few days before that she applied for a summer job as a scooper at a local ice cream shop. She got an interview the day after she submitted the application. She was hired on the spot at the interview and started working two days after that. So small businesses, generally, seem to be on this kind of hiring spree. So that seems to indicate that they are seeing a real uptick in business, and that’s got to be a good thing for the economy, right?

LIZ ANN: It is a good thing for the economy, but you’re right, there are rampant shortages. I have my own anecdote that is somewhat similar, and it made the national news. I have a summer house on Nantucket where I am now, and there was a report about one particular restaurant who had to shut down the whole bar side of their restaurant during dinner hours, because they didn’t have enough staff to be servers, both on the restaurant side, and bartenders and servers on the bar side. And they’ve gone to interviewing eighth-graders for some of these jobs, which they’ve never done before. So I agree with you—the anecdotes are rampant, and some of this will be lasting.

The one thing about small-business hiring is the NFIB, the small-business, kind of, cooperative, so to speak, and they do a lot of surveys—the hiring plans from that survey are absolutely off the charts, but the compensation plans have not gone as parabolic. That may be not great from the perspective of, “Wouldn’t it be great if everybody was seeing their wages go up a massive amount?” But from an inflation backdrop story, that’s not a bad combination.

MIKE: Well, I’ve got an eighth-grader that I would love to farm out to working, if that could happen this summer, so we’ll talk after the podcast.

Liz Ann, let’s shift to a question I’m getting a lot right now from investors, and that’s about the president’s big spending plans on infrastructure and social programs. Lawmakers across the political spectrum generally agree that we need to upgrade our infrastructure. As usual, the disagreement is how to pay for it. But a big infrastructure bill would likely create more jobs, but it could also create more competition for goods and materials that are already in short supply and, ultimately, boost the cost of projects. Could that, then, lead to even higher inflation? How are you thinking about the potential for more spending from Washington?

LIZ ANN: It’s a great question. And I think the impact in the short term would be more on inflation expectations versus actual inflation itself, because—as you certainly know, Mike, and we saw from the 2009 fiscal infrastructure bill—infrastructure spending is spread out over extended periods of time.

That’s very different than some of the inflation we’re seeing by virtue of massive fiscal stimulus via payments directly to the hands of consumers that can go out and spend it right away. We also have an important demand force that tends to come in commodity markets, in raw material costs out of China.

They’re, by far, the biggest consumers and purchasers of raw materials and certain commodities. And they came out of their COVID situation very quickly and very robustly. And they’re already starting, actually, to rein in some economic activity—they’re tightening liquidity and policy and trying to slow growth and keep that commodity-based inflation from getting out of hand.

So I think the combination of the type of stimulus we’re talking about being spread out over many, many years and the biggest driver from a demand factor globally being China already purposely looking to slow the economy, I don’t think we’re going to see a huge impact, at least not a moment in time. The problem is if it causes a move up in inflation expectations, that goes back to that psychological aspect of inflation that certainly the Fed is keeping a close eye on.

MIKE: Well, confidence in the markets seems to be on the rise. Markets don’t seem overly worried about inflation right now. So has the market already baked in some type of inflation at this point?

LIZ ANN: I think, to some degree. When we saw back in March, the spike in the 10-year yield up to 1.7%, you may remember that you saw a big pickup in volatility in the market. You saw, effectively, a rerating of some of the more highly valued segments of the market, tied to that was a full 10% correction in the NASDAQ. So you saw the bond market, I think, correctly anticipate the inflation that we’re seeing right now with the move up to 1.7 that was reflected in, not just volatility in the stock market, but shifts in leadership and greater weakness in areas where we had more expensive shares. And so what happens when you see either a spike in inflation or interest rates, because you’re talking about the discount rate for future earnings, those future earnings become a little bit less valuable. So that was the rerating that happened.

Now I think part of the reason why you’re seeing a shift back towards some of the growthier parts of the market is because yields have been so tame during this period where we’re actually seeing inflation. So I really think that key to the equity market—or I should say a key to the equity market, not the key—is actually what happens in the bond market. It’s always an important connection, and maybe more so now than at any other point, because of that inflation tie-in, and a general belief that the bond market is often a more rational reflector of what’s going on in the economy than the stock market, which at times can be very irrational in its behavior and doesn’t necessarily tell you a lot about the inflation picture.

So I think the yield picture is an extremely important one. I think if we continue to see the bond market well anchored and behaved, I think that’s generally a positive. If we saw another big spike in yields, I think you might see something similar to what happened the last time with volatility and growthier parts of the market getting hurt.

The scenario that not a lot of people are talking about, which is not our base case, but I’m always intrigued by the story no one is telling, is a yield or inflation story that’s more of a boom/bust. Where once we get out of this, we not only just settle down, but we move down both in growth and inflation, and we go back to, at best, muddle through and disinflation. And, again, not a base case, but it’s something to at least have in the back of our mind, because that is a scenario that could unfold, even if it’s low likelihood.

MIKE: Well, that’s a perfect segue to my last set of questions, which is about what investors should be thinking about as they go into this situation. As you know, whenever the environment feels like it’s changing or is changing, some investors look for opportunities, others go into protection mode. So let’s start with those in the opportunities camp. Where should they be looking? Is it a value-versus-growth proposition, or is there more to consider?

LIZ ANN: Well, let me start big picture with some kind of statistics and history that I think are really important in this discussion, and then I’ll tie it into the whole sort of growth-value, what works, what doesn’t work.

If you look at the post-World War II period, so 1950 on, because we know there were so many extreme things happening in inflation and money supply growth and stimulus associated with World War II, so you don’t want to look at that in conjunction with data that looks at how the market has done during various inflation episodes. And it also has to tie in what’s actually going on in the economy, economic growth. So if you go back to 1950, and you look at the entire span of time through the present, only when we’re in expansion mode, so leaving aside recessions, just any time the economy is not negative, during periods of rising … and this is using the Consumer Price Index … rising inflation, the stock market on an annualized basis is up less than 4%. In periods of falling CPI, it’s up about 10%.

But too many people stop the analysis there. And by the way, up almost 4 is not dire straits. If you’re in a non-recessionary period, the market can handle a bit of inflation, although tends to do worse when inflation is rising versus falling.

But here’s the next level that really matters. If you look over that same period of time—again, leaving out recessions—and you break economic growth into quartiles, so four different ranges of economic growth, when you’re in the highest quartile of economic growth, of GDP growth, and that happens to be 4.8% up to teens kind of GDP growth, the stock market has done better when inflation is rising than when it’s falling.

So we can’t just look at inflation in a vacuum. We have to put in context of what is the growth in the economy. And having a bit of inflation, if you’ve got economic growth even stronger than that, such when you’ve got strong nominal growth, you subtract the inflation rate. If you’re still well into positive real economic growth, that’s not a bad environment for the market.

You know, the whole growth-value debate is one that frustrates me to no end, as you know, Mike. Part of the reason why we don’t make tactical recommendations formally on growth versus value is … when I hear people say, “We think you should overweight growth” or “We think you should overweight value,” the first question that pops into my head is “What are you talking about?” Are you talking about the indexes of growth versus value? And even if you are, understanding that the S&P Growth Index, the Russell 1000 Large-Cap Growth Index, the Russell 2000 Small-Cap Growth Index, you look at the industry and sector weightings among those three, they’re vastly different. Same thing with the value indexes.

There’s a difference between the factors of growth and value, and the indexes of growth and value, and there’s so many examples. You know, utilities right now, we’ve had as an underperform for a while. They’re actually the worst performing sector in the S&P 500 over the past year. Part of the reason for that is they’re really expensive. They don’t sit in the growth indexes. They’re still housed in the value indexes, but they’re really expensive, overvalued stocks that happened to be housed in the value indexes. I did a study recently that screened for stocks based on factors of value or growth. And value, the factor of value, is outperforming growth way more in the growthier sectors than it is in the more value-oriented sectors. So the factor of value is outperforming in tech.

There’s only one sector where value is not outperforming growth, where growth is outperforming value, and that’s the energy sector, a classic value sector, yet the growth factor, those companies that have better long-term growth prospects have been doing better than those that purely screen well on value.

So we’ve really turned a lot of things upside down. And the last thing I’d say, and it’s not really growth and value, when we think about other categorizations, like defensives versus cyclicals—defensives people always think of as things like utilities and consumer staples. Well, guess what became the pandemic’s defensives back in the worst part of the pandemic? It was tech, consumer discretionary, communication services, the Apples, Amazons, Googles, Facebook. Those became the defensives because of the unique nature of this pandemic.

So we just … we can’t be so simplistic with our labels. We have to understand that the characteristics or factors can sometimes differ greatly relative to either preconceived notions or even index labels.

MIKE: Liz Ann, let’s end with this. Historically, inflationary times haven’t lasted more than about a year. So should investors be making any investing moves based on inflation at all?

LIZ ANN: Well, I think there may be things on the margin if you worry about your own personal situation, and inflating, eroding, either something portfolio-based or in your life. And there are subtle things that you can do. We have written about—not me, personally, but our colleague, Kathy Jones and her team on the fixed income side—about maybe where you can take advantage of the TIPS market. I think there are opportunities in certain segments of the equity market. There’s certainly been some move to hedge inflation via, say, precious metals. The one category or asset class since 1900, actually, that has outperformed inflation every single decade, small-cap stocks. But that doesn’t mean, even if you personally think inflation is about to move to the extreme, that you should be dramatically repositioning your portfolio into either historic inflation hedges or perceived inflation hedges, because over time there is no pure consistency in terms of “Inflation goes up; here’s what’s worked well.”

The energy sector does happen to be the best performing sector in inflationary times. We have an outperform on energy, but we certainly wouldn’t recommend wholesale changes purely for an inflation play, even if there are more on-the-margin things people can do.

MIKE: Well, as usual, Liz Ann, you have great perspective on all this. Thanks so much for joining me today.

LIZ ANN: My pleasure. Thanks, Mike.

MIKE: That’s Liz Ann Sonders, Schwab’s chief investment strategist. You can, and you really should, follow her on Twitter @LizAnnSonders. And if you would like to learn more about the history of inflation and how it could impact your portfolio, check out the most recent episode of our sister podcast, Financial Decoder. You can find it at schwab.com/financialdecoder.

On my Why It Matters section this week, I want to highlight five bills that were introduced late last week in the House of Representatives. They represent a new front in the ongoing battle between Washington policymakers and big tech companies.

First, a little background. Last year, Democrats on the House Judiciary Subcommittee on Antitrust, Commercial, and Administrative Law released the results of a 16-month investigation into the anti-competitive practices of Amazon, Apple, Facebook, and Google. The 450-page report was scathing in its criticism of these companies’ practices, comparing them to railroad tycoons and oil barons of more than a century ago. The report called on Congress and federal regulators to check their monopoly power.

While the report made some headlines when it came out last October, it was less than a month before the presidential election, so it probably didn’t make as much of a splash as it might have. But the five bills introduced last week represent a major step forward in that ongoing effort. If they become law—and I want to be clear that it is far from certain that will happen—they would mark the most significant overhaul of anti-competition laws in decades.

The most controversial of the bills would make it illegal for tech platforms to operate another line of business that creates a conflict of interest. That bill seems particularly aimed at Amazon, which operates an e-commerce hub while also selling its own products on that hub. And it could be trouble for Google, whose search engine ranks things like videos, but which also owns YouTube, one of the largest streaming video platforms. The bill seems geared toward forcing these companies to break up into separate companies.

Of course, the United States has not used anti-trust laws to break up a company since AT&T in the 1980s—so, again, it’s far from clear that lawmakers on Capitol Hill would go down this road.

Other bills in the package would make it harder for the tech giants to buy up competitors and would bar companies from giving their own products and services preference over rivals, whether it be in search results, app stores, or operating systems.

Of course, the tech companies are strongly opposed to these changes—and they have powerful allies on Capitol Hill. But one notable feature of the five House bills: Each one was introduced by a Democrat and a Republican—a rare instance of bipartisanship in a bitterly divided Washington.

So why does it matter? As I’ve said on this podcast before, these companies are so important to investors and the markets today. As of last week, the four stocks I mentioned—Amazon, Apple, Facebook, and Google—make up about 12.5% of the S&P 500. If you add just two more big players, Microsoft and Netflix, that percentage rises to an incredible 23.8%. So many individuals are invested in them, whether directly or through mutual funds or exchange-traded funds, that virtually all investors probably have some stake in the outcome of this fight.

For investors, it’s important to remember that nothing is happening anytime soon—legislation in general takes a long time to wind through Congress, and something as complex and controversial as a revamp of the nation’s anti-trust laws is not going to move quickly.

But I do think investors should keep an eye on this as it unfolds, because it represents a new level of risk for some of the most important companies in the markets today.

That’s all for this week’s episode of WashingtonWise Investor. I’ll be back in two weeks, so please take a moment now to follow the show in your listening app so you don’t miss an episode. And if you like what you’ve heard, leave us a rating or a review—that really helps new listeners discover the show.

For important disclosures, see the show notes or schwab.com/washingtonwise, where you can also find a transcript.

I’m Mike Townsend, and this has been WashingtonWise Investor. Wherever you are, stay safe, stay healthy, and keep investing wisely.

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Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications and other factors. Lower rated securities are subject to greater credit risk, default risk, and liquidity risk.

Small cap investments are subject to greater volatility than those in other asset categories.

Commodity-related products carry a high level of risk and are not suitable for all investors. Commodity-related products may be extremely volatile, illiquid and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions.

Since a sector fund is typically not diversified and focuses its investments on companies involved in a specific sector, the fund may involve a greater degree of risk than an investment in other mutual funds with greater diversification.

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