Uncertainty or Optimism: A Unique Economic Cycle (With Ed Hyman)

by Liz Ann Sonders, Chief Investment Strategist, Kathy Jones, Head of Fixed Income, Charles Schwab & Company Ltd.

Transcript:

LIZ ANN SONDERS: I'm Liz Ann Sonders.

KATHY JONES: And I'm Kathy Jones.

LIZ ANN: And the 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, Kathy, it has been an eventful couple of weeks since our last episode of the podcast. We are not a politics podcast. Thank goodness we are not a politics podcast. You can get plenty of that elsewhere. And of course, our bias in terms of elsewhere is Mike Townsend's, our own Mike Townsend's, WashingtonWise podcast.

But there's also been a lot of economics news and fluctuations in the market. So we can chat a little bit about that.

KATHY: Well, not to mention a global tech outage that disrupted numerous companies and whole industries. I don't know about you—I was traveling the day of the CrowdStrike problem, and I … actually my flight was on time, remarkably.

LIZ ANN: Wow.

KATHY: I haven't had an on-time flight in about two years. So the day everyone else has a delay, I got lucky for some reason. But I have heard from people who've had a lot of difficulty, and they're still stranded in places. So that's a …

LIZ ANN: Your version of being a contrarian.

KATHY: Yeah, I guess so. I'm a contrarian indicator, yeah.

LIZ ANN: Haha.

KATHY: But yeah, yes, there's a lot going on. Why don't you start with what's going on in the equity market and what you're seeing there?

LIZ ANN: Yeah, I mean, it's been a wild couple of weeks, and really the major shift in leadership that has been underway away from a lot of the mega-cap prior darlings down into the smaller-cap indexes was directly triggered by the better-than-expected CPI report a couple of weeks ago. And in the immediate aftermath of that, I think it was as of July 16th, the five-day outperformance by the Russell 2000® relative to the S&P 500® was 10 percentage points—and that's by far an all-time record. Prior, similar spikes, though not to that same degree, all occurred during pretty tumultuous market backdrops. There were a couple of them in the late 1990s into the peak in 2000. There was one right in the immediate aftermath of the Crash of 1987. You saw a couple during the global financial crisis. So that's a little unsettling that that type of spread occurs when there's turmoil.

But as you and I are recording this, we have another fairly ugly day with the technology stocks, and a lot of the mega caps, actually the growth trio of tech, consumer discretionary, and communication services getting hit pretty significantly, and utilities kind of bringing up the front end. Obviously a bit of defense. And I think it's reflective of—in terms of the small-cap outperform—it's reflective of what the CPI essentially did, which is, for now anyway, cement the idea of the Fed starting to cut rates in September. And that's something that you and I have talked about on this program. And I'm guessing you're still in the camp of a September start to rate cuts.

KATHY: Yeah, we've been there for quite some time. And I think that … actually had thought that the Fed might start earlier this year, but then we got, you know, first-quarter numbers were a little bit more buoyant than expected. And so they held off. But I think September, barring some big, big surprise, is highly likely.

I actually had a couple of pundits—even a former Fed official out today, who's been in the "higher for longer" camp for a long time—come out and say, "Oh, they might be waiting too long if they wait till September," which I think is kind of notable just because he has been one of those people who thought the Fed actually didn't raise rates enough initially and should stay there for a long time. And then he's looking at the data and deciding things have changed.

Yeah, I think the key data here, we've seen this sort of slower consumer spending. We're seeing lower-income folks struggling, smaller companies having more difficulty as financing costs have stayed high for a long time. And now we wait for more inflation data and more employment data. But I do think that it's pretty likely, I mean, very, very likely that we'll get a rate cut in September. Probably will be signaled at the Jackson Hole, Wyoming, meeting that the Fed holds every year in August. We do have a meeting in July—July 30th and 31st. It would be quite a surprise, I think, if the Fed cut at that meeting simply because they haven't laid the groundwork sort of definitively to do that. But it's looking more and more likely. Of course, it's already discounted by the market. So I don't think it'll be a huge surprise to anybody, maybe just a relief to a lot of people.

I also just want to make a comment. You know, we're both on social media, and I constantly get the question both on social media and elsewhere in interviews is, "Can the Fed cut that close to the election?" And I think, well, the obvious answer is yes, and they have in the past. But the second point I think that people tend to forget is monetary policy does work with long lags. So the slowdown in inflation we're seeing now, you know, that is the result of some of the efforts of the Fed, you know, a year or more ago. So if they cut in September, the impact on the economy in November is zero, practically. It maybe has an impact on the market, but again, the market's already anticipated it. So the idea that this somehow has a political motivation, or that they can't do it because of a political situation, you know, strikes me as just not consistent with the way monetary policy works.

LIZ ANN: Yeah, no, totally agree. And because we're talking now about cutting—because that's ostensibly the next move by the Fed—it's also the case that the Fed has hiked rates around an election. So elections in the past have not prevented them from acting in their capacity based on their mandates.

You know, you mentioned the smaller companies and generally higher financing costs and obviously therefore benefits from, all else equal, a Fed that starts to move to easier monetary policy. But one piece of advice we have for investors who are looking at this shift in leadership and the relative outperformance by small caps—and I'll use a bit of trader lingo now here—I would fade the lower-quality end of the spectrum in terms of small caps, particularly within an index like the Russell 2000, and lean in to the higher-quality-type names.

And one example of that that I think is illustrative is if you just break the Russell 2000 into two cohorts, two simple cohorts—profitable companies and non-profitable companies—and you look over the trailing one-year period of time, the profitable companies are outperforming the non-profitable companies by almost 20 percentage points. And I think that's a phenomenon that's likely to persist. So yes, all else equal, rates coming down, easier financing costs, but there's a large percentage of the Russell 2000, that's not the only thing that plagues them. It's also that lack of profitability.

And one other tip—although I don't tend to like to use that word—for investors out there that like to use indexes, not necessarily to take a passive exposure to an index. But a lot of people use indexes as a base for finding interesting stocks. And the one piece of advice I would share is that the Russell 2000 has no profitability filter. It's just based on size, and the stocks go in there. S&P has a small-cap index as well. It's the S&P 600. And they use a profitability filter. So it's an inherently much higher quality index. So that would just be my sort of tip for the day.

KATHY: That's interesting. That's something I certainly didn't know. Being not an equity person, that's a detail I have not been aware of.

You know, I mentioned that I was traveling. And I was on the road speaking to a lot of clients in the Bay Area last week. And I think a point that needs to be made, or people should think about, is that this is kind of a great moment if you're rebalancing, right? Equity market is still … it has come down a little bit, but you know, really, it's still really buoyant. And bond yields are still pretty high. It's pretty easy to lock in close to 5% for five to seven years or so without taking a huge amount of risk. If you're going to rebalance, usually we do this when something's wrong in one asset class or another, right? And actually, this is kind of a good opportunity if you're thinking about, you know, trimming some exposure in one place and adding in another. This is not a bad time to do it. And we don't get these opportunities very often.

LIZ ANN: Couldn't agree more. And we all talk about those disciplines like rebalancing. It, to me, just rebalancing in general is such a beautiful discipline because it forces us to do what we know we're supposed to do, which is—I don't tend to say, "buy low, sell high," because that sometimes infers all-in, all-out kind of investment decision-making—but, "add low, trim high." And as we all know, when investors are left to their own devices, they often do the complete opposite just because of the emotional side. And I think rebalancing is sort of the unsung hero of investment disciplines. But you're right pointing out that there's opportunity for that without there being carnage in one asset class or one portion of an asset class.

KATHY: So Liz Ann, go ahead and start talking about your guest today. It's someone with whom I'm quite familiar, having worked with him years ago at another firm. But yeah, tell us about our guest.

LIZ ANN: Yeah, certainly—just a legend in our business. Our guest is Ed Hyman. Ed is the chairman of Evercore ISI and vice chairman of Evercore overall. He heads Evercore ISI's economic research team. And for the past 48 years, he's been ranked by Institutional Investor poll of investors for economics, achieving the number-one rank 43 times out of the 48 years he has been on that list—which is extraordinary and unprecedented.

Prior to joining Evercore ISI, he was the chairman and founder of ISI Group, LLC—it's a broker-dealer—and ISI, Inc.—which is a fund management company—both of which he formed in 1991. And before that, he was vice chairman and member of the board of investment management firm C.J. Lawrence, which he joined in 1972. He was also an economic consultant at Data Resources. That was from 1969 to 1971. So an incredible tenure in our industry.

Ed regularly appears in financial media. He's a member of the China Institute Board of Trustees, the Finance Committee of Bowdoin College, and the Economic Club of New York.

So Ed—I couldn't be more thrilled to have you joining the podcast today. You have been on my very, very short list of guests from the minute we launched the program. And so I'm really thrilled. I think you and I probably met the first time at least 30 years ago. It might have even been 35 years ago. I started in the business in the mid-80s, so it wasn't all that long after that. And you've just been such an icon. So thank you so much for agreeing to come on and chat with me.

ED HYMAN: It is my pleasure. And you know, we have that connection back there with Marty Zweig. I love him. I know you do, too.

LIZ ANN: I do, and I learned a lot from him. And I learned a lot from you over the decades too, so …

ED: Well, thank you very much.

LIZ ANN: I love having people on, maybe like me, that have been around the block a little bit and would not be considered newbies.

ED: Liz, you are a kid, believe me.

LIZ ANN: Oh, I don't know about that.

But I want to start big picture with the economy. That's your bailiwick. And to say this has been a unique cycle is the ultimate understatement, courtesy of the pandemic for the most part. So how do you think this cycle in particular differs from past cycles? And where do you think we are in this economic cycle?

ED: Liz Ann, like always, you have a great knack for nailing it, for making it straightforward for people. And this cycle is pandemic. It's not a business cycle. Maybe it's starting to take on characteristics that you and I could identify, but it started with the pandemic, period. Now, you know, we might have had a recession, and we might have had a business cycle, but we'll never know—certainly never know what type of cycle, but what a cycle we've had. And I think it really has been pandemic, but it's starting to take on characteristics that I'm more familiar with as a business cycle analyst.

So inflation picked up. You know, that happens, you know, toward the end of business cycles. And so I genuinely think we're toward the end of a business cycle, but it still has very unusual characteristics coming from the pandemic. And the Fed is tightening, which is characteristic of a later cycle environment. It's not that unusual to have the stock market doing well toward the end of a business cycle. In 2005, 2006, 2007, before the Great Recession hit, the S&P had a 20% rally and peaked. But eight weeks before the recession hit. You can't look out the window and tell what the weather is going to be next week, in this particular regard. So I think we're generally now—having moved through the pandemic and got inflation, Fed tightening—now we are more similar to the end of a business cycle.

LIZ ANN: Do you think that a soft landing is possible? And let me preface it by the perspective that I've had on this unique cycle. I've used the descriptor "rolling." You said we might have had a recession. You're right. We did in manufacturing and housing and housing-related, and the whole first half of 2022 was negative GDP. So there clearly has been weakness. It just rolled through at a time when we had offsetting strength.

So thinking in traditional recession terms—NBER[1]-declared recession—do you think that's in the cards near-term?

ED: I don't think near-term. I've had the poor judgment so far of thinking that monetary tightening would really hurt the economy. Now, Liz Ann, I tend to focus on the most recent periods in addition to studying history—but in the most recent business cycle, for when the yield curve inverted to when the recession hit, was 18 months. We're now something about 20 or 21. Not crazy different, just longer. And you and I don't have to work too hard to figure out that the lag on monetary policy might be longer this time because of fiscal stimulus. And we also had a huge increase in the money supply.

So I've been thinking that we'll get a recession sooner or later, but I've sort of given up on it. And now I think your rolling recession idea is correct. We've been unloading, like the housing problem. A lot of the inventory problem has been dealt with.

I mentioned the Great Recession. Yeah, the housing crisis—that was horrible and observable, sort of predictable. We don't have any of that now. But you do have an inverted yield curve, which we have a team of about 40 people here, 40 sales guys and 40 traders—and they're getting tired of me, this yield curve thing.

LIZ ANN: Haha.

ED: But it's still there. And then you've had a contraction in the money supply. Let's say, right now, it's about flat, having been up a lot. And there's an issue, I'll just say it, of level versus rate of change.

And then you have quantitative tightening, which we haven't really had in the past. So I can't study that. And fed funds are five and a half, stated, maybe six and a half if you adjust for quantitative tightening. And then the real rate, for whatever that's worth, is going up as inflation comes down.

OK. So what do I do now? I definitely think that inflation is slowing. But moving on from there, I think the economy is slowing, and both will continue to slow. And then that will lead us to the promised land of Fed easing.

LIZ ANN: Do you agree with the market's assessment now of a September start to rate cuts?

ED: I do. I’ve mentioned our team. We have … Krishna Guha does our central bank work. And that's his view. I see no reason to differ with that. And then we'll see what happens after that.

LIZ ANN: You made an interesting comment. You were talking specifically about money supply, but it popped into my head as you were saying it, as it relates to inflation, which is rate of change versus level. And I want to tie your thoughts on inflation into sort of the health and the psyche of the consumer, because as market analysts and economists, we live in the rate-of-change world. And we're looking at the minutiae of inflation data and month-over-month changes in base effects and core versus headline and super core. And I think probably the average consumer …

ED: I’m getting a headache, haha.

LIZ ANN: "Like, come on, who cares? All I know is I'm paying a lot more for stuff than I was pre-pandemic." And they live in level terms, even though we live more in the minutiae. So tie that in. It's been a unique cycle because certainly as it relates to things like the labor market, you would think consumers would have a pretty optimistic assessment of what's going on. But it seems like the inflation backdrop is really coloring and maybe fading some of that optimism.

So given how important the consumer is to the U.S. economy, are you starting to see cracks? What is your thinking about the health of the consumer in the context of the broader economy?

ED: Cracks and inflation—and it's not inflation; it's the price level.

So prices are up. I go to a place in the summer—a roast beef sandwich a couple of years ago cost eight bucks. Now it costs 14. And so when I go to get four sandwiches for my family, four times 14 adds up to, almost like I have to get a second mortgage. Haha.

LIZ ANN: Haha.

ED: And so I think you put your finger on it again. I mean, it's the reason that people are upset about the economy—because, you know, if the sandwich next summer is 14 bucks, I’m not going to be thinking, "Oh, wow, it's great. It's 14 bucks." I'll be thinking, "Gee, it’s still 14 bucks?" We had a bad inflation problem for sure.

There's a lot of news today about car prices coming down. But car prices went up a bunch, say, from, you know, 35,000 to 55,000. So one of the reasons I'm optimistic on inflation, if you will, is because it's hard for the level to go up anymore. They report retail sales obviously once a month. And when they reported them last week, they were up about 3%. And the inflation rate in that sector was zero. There was no increase in prices. But you didn't hear a single cheer from the stands. So I say, "Oh, that's great because, you know, the prices have gone up a bunch, but inflation is probably going to read on the low side."

And you mentioned sort of the psychology of the consumer. So part of this job is studying psychology. And the consumer doesn't feel so good. And there are some cracks here and there even at the top end like Burberry's been having some problems. And then, you know, Disney having … sort of getting in the middle space. Although I don't know how a family of four or five can afford to go to Disney World. But anyway, they're having, you know, a problem with pricing and auto prices.

So in general, there's some push back by consumers. So there's plenty of evidence that either this continuation of a rolling recession or just a slowdown in general is occurring. So I feel, you know, pretty comfortable about the psychology, to bring that term up again—the stock market. So the stock market is thinking, "I got no recession at the moment," and then inflation is slowing. So that brings the Fed into play. And in the meantime, market seems to want to go up.

LIZ ANN: A couple threads there I wanted to touch on. I think one of the frustrations for consumers, as it relates to inflation, is not just that the level is higher than it was pre-pandemic. But if you break a metric like CPI into discretionary versus non-discretionary components—the discretionary components, the wants—they're flat. They're almost in deflation territory. But it's the non-discretionary components—the needs, the stuff we have to consume, you know, insurance and medical—that's still running at more than a 5% inflation rate. So I think that kind of helps to explain, especially down the income spectrum, because those needs purchases are a much larger share.

But let's tie in all this uncertainty as it relates to the market. I'm glad you brought up the market because normally you spend probably most of your time in the world of the economy, but they're related. They're not directly connected, but the strength of the market is obviously largely courtesy of some of the mega-cap names through the multiplier of their size. But there's been much more churn and weakness and rotation under the surface.

I don't know if you know this stat, but the Nasdaq at the index level has had only a 7% drawdown this year—maximum drawdown. But the average member maximum drawdown is −40%.

ED: Is that right?

LIZ ANN: −40%. Just year-to-date.

ED: Wow.

LIZ ANN: So I think it's sort of a tale of two markets. And I wanted your thoughts on that, that you wouldn't necessarily get the full picture if you're just looking at what the indexes are doing. But under the surface, a lot of that rotation and churn, I think probably does reflect all of these uncertainties, whether it's inflation or Fed policy or the macroeconomic environment. So do you or anyone at Evercore have a perspective on whether this market stays as concentrated as it has, or whether some of this recent broadening out started once we got the CPI report—the much better than expected CPI report—could persist?

ED: The answer is yes.

LIZ ANN: Haha.

ED: Haha. Rich Ross does our technical work, and he's been fantastic. I mean, "bullish, bearish, bullish, bearish, bullish, bearish, bullish." And last week he turned cautious on a short-term basis. This is the first time he's done that. And he sits right next to me in my office. Actually, I don't have an office. I just have a fish tank separating us.

LIZ ANN: I love that.

ED: So he's influenced me a lot. And that gets into the, you know, the big tech stocks. So I lean toward them continuing to do OK. But also, it’s time for a rotation. And so that's, you know, fine too, but it's not my bailiwick as you correctly pointed out. But we survey companies every week as my North Star. It's where I really find myself believing. And that survey of companies 0 to 100 was 60, and now it's 48.

LIZ ANN: And that drop occurred over what span of time, going from 60 to 48?

ED: Two years, in the past two years. And 45 is more like recession. But I'm pretty much a bottom-up observer. I try and listen as hard as I can, frankly, as I know you do as you talk to people around the country.

And a lot of places … I have a place out in Deer Valley, which is part of Utah, Park City. It's just booming. So if you didn't know better, this economy is on fire. But there are other places that are not booming. But the economy's been pretty good. What I'm coming around to is the earnings have been pretty nice so far. Right now, as we are on the call here, earnings are up 9% in the second quarter. That's a pretty strong number—too strong, frankly, for inflation. But it's up 9% and could go higher. And there have been some duds out there. But there have been also some good ones too.

LIZ ANN: Now, part of the earnings season focus, I think anyway, should not just be on the bottom-line results, but on top line and, importantly, profit margins.

Whether it's just the work you do from a macro perspective or maybe some of the survey data, do you sense confidence on the part of CEOs and CFOs of maintaining what have been quite elevated profit margins and a disinflationary backdrop here?

ED: It's really mixed. We have a morning meeting every morning, starts at 7:15, and I go to it every morning. And I listen to our analysts, and they are good. As a firm, we're ranked number one on Wall Street, which I'm so proud of. But I listen to them, and it is mixed. And it's been pretty much, you know, like that so far in this season.

But I will say there have been some notable cracks in the construction equipment space. We do a proprietary survey in that space. It's been just flat lousy. And then we have an analyst that covers the fast-food business. And he's—this is a face-to-face meeting we have every morning—he can barely show his face he's so upset with what's going on, you know, with the discounting that's going on. It's a food price war is going on. But other areas are doing fine. So it's mixed so far.

But on balance, the economy’s slowly slowing, nice and slowly coming down and may last another three months or year.

LIZ ANN: You know, if you and I were on this or saw each other again first half of next year, and it turned out we were in or are in a recession. If there were to be serious economic deterioration, say, in the near term in the next few quarters, what would cause it?

And I'm going to then ask you a more optimistic question, because I don't like to be Debbie Downer. I like to think in scenario terms. And right now, we seem to be in, "The economy is fine," almost a little bit of that Goldilocks growth, decent, inflation coming down. What could be that represents some sort of tipping point for the economy if we were heading into a recession? What would you think we would point to as, "Boy, that was the thing that kind of tipped the economy over"?

ED: It’d be employment. If you asked me again, it’d still be employment. And so far employment has been, I guess, the bright spot or a bright spot, but I wouldn't be doing my job for you if I didn't yet again make the point that I think we have very tight monetary policy with the inverted yield curve, the level of rates, and quantitative tightening. And so if we get to the point where the economy starts to really weaken, which means employment starts to really weaken, the issue will be how aggressively the Fed responds.

And we have a China research team here. And so the Shanghai Composite came down quite a bit. So I brought … I said, "Neo"—Neo Wang heads my China team—I said, "Neo, what do you think about this?" 3000 is the line in the sand for the Chinese leadership. And the market is like 2950. So you know, China's there, and it's not doing well. We have a survey of 21 companies that have sales in China. I mentioned 60 on our U.S. survey at the top. It’s down 49. And our survey of companies that have sales in China is 30. Yeah. So I don't have to go get a roast beef sandwich to know that China is struggling, and that keeps downward pressure on oil prices. Last I looked before I came in here, they were down. So obviously you have a lot of problems at their end.

LIZ ANN: And so let me close with a forward-looking question. You probably think of a crystal ball as being just as hazy as I do, but as you think about the future of the U.S. economy, what are you most optimistic about?

I always like to end these conversations not talking about something dour and inflation and Fed policy, but optimism. So when you think about the future, what are you most optimistic about with regard to the U.S. economy?

ED: AI. Pick up the last book by Henry Kissinger and Eric Schmidt, and the AI expert at MIT. I mean, if you read that you think everything's going to be absolutely great.

I'd like to think that I am as good a historian as anybody. I love economic history. I’ve read a lot about the 1920s. And the Roaring 20s—they didn't call it the Roaring '20s when it was roaring.

LIZ ANN: Right.

ED: It's only when we found out that it was a disaster. So my dear friend Ed Yardeni has been trafficking this idea.

But if inflation were to have a soft landing, if it were to slow down because let's say we get lucky that China remains soft, and that keeps commodity prices under control—the China GDP price deflator came out last week. It was −1% for the world's second-biggest economy. So it’s having mild disinflation or deflation.

But we could get lucky and inflation go to zero. And the economy then goes on. And they're real positive with the technology side of the economy. In the 1920s, the Roaring '20s, was because we had a technology revolution. You had electricity, you had the telephone, and you had mass production all in like three years. And so the economy was really good. So that could be a favorable outcome.

You know, people are lucky to have firms like yours to help guide them with their financial situation. Because, you know, I own a lot of stocks, and I think that’s a good idea. Hard to know which ones to own. But I also have more cash than I usually do because I'm worried about what if it's the Roaring '20s on the bad side?

But anyway, Liz Ann, I'm so proud of what you've done with your career.

LIZ ANN: Oh, thank you, Ed. Oh my gosh.

ED: And keep it up.

LIZ ANN: I hope so, and thank you for your kind comments about our company. I’m biased, obviously, having been at Schwab for 25 years of the 50 years we've been around. But I appreciate those comments. I agree with you. And I also like that we ended on a note of optimism, because our founder, Chuck Schwab himself, has always said that investing, by its nature, is an act of optimism. And it's something that I try to live by. And when I have conversations with icons like you, I always have that little voice in my head—"Get to something optimistic. Let's close on something optimistic," because I think we need to be optimistic about whether it's our markets or our economy. So I'm glad you were able to impart your few years of wisdom and help us close on an optimistic note.

So Ed, thank you so much for joining us and sitting down with me, literally and figuratively.

ED: My pleasure. Good to catch up. Have me back again, OK?

LIZ ANN: I will. Thank you so much.

KATHY: Thanks for that, Liz Ann. Great to hear from Ed Hyman. As you mentioned, just a true legend in the industry.

So looking ahead the next couple of weeks, what do you think investors should be watching?

LIZ ANN: Um, all of it, I think. You know, you already mentioned the Fed meeting, and I'm in your camp as well—don't expect a move by the Fed. But I think as is typically the case, the press conference could be fairly interesting in terms of what, if anything, they start to telegraph with regard to maybe the September meeting.

But there's also important data out next week. We've got some data on home prices and sales. I think that's increasingly important, especially given the rate backdrop. We've got the JOLTS data, which includes job openings and the quits rate. Consumer confidence comes out. Challenger, which is a measure of layoff announcements, I think that may be something that comes into sharper focus. We get productivity and unit labor costs. Unemployment claims, obviously, which is every week. We get the ISM manufacturing, and then we get the big one at the end of the week, which is the jobs report.

What's on your radar, Kathy?

KATHY: Yeah, all of that. I think we're really focusing now on the employment numbers because we know that the Fed's view is that the balance of risks has shifted. So inflation's coming down. It's getting very close to target. I mean, we're talking about 2.5% versus a target of 2 for core PCE. That's definitely shooting distance.

But now the worry is that if the Fed doesn't move fast enough to cut rates, we'll get a further deterioration in the job market. So we're really going to be focusing on those JOLTS numbers and on the unemployment report and see if that unemployment rate continues to tick higher. And we'll see how the wage growth metrics are going because we have seen some slowdown in wage growth, but it's still running probably higher than the Fed would like to see. So those are the key indicators I'll be watching.

So as always, thanks for listening. That's it for us this week, but 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. And I do have a few new imposters, so please be careful about that. I don't get nearly as many as Liz Ann gets, but I do have my share. So I'm definitely just @KathyJones.

LIZ ANN: Yeah, and what do they say, "Imitation is the greatest form of flattery?" That's not my view on these imposters. And there's still a rash of them. Just the other day, there were 250 between Instagram, Facebook, and now TikTok has gotten into the mix too. So I am not active on any of those platforms. So if you see anything that looks like it's me, especially something claiming that I have some private three-stock investment club, don't get duped. It is not me. Those are imposters. I am only active on LinkedIn and Twitter (or X), which is @LizAnnSonders.

And specific to our podcast—if you have enjoyed the show, we'd really be grateful if you'd leave us a review on Apple Podcasts, a rating on Spotify, or feedback, really, wherever you listen. You can also follow us for free in your favorite podcasting app.

Well, it's that time of year in the middle of summer. We'll be off for a couple of weeks of vacation and travel, but you can always keep up with us on social media or listen to previous episodes at schwab.com/OnInvesting.

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

[1] NBER is the National Bureau of Economic Research, the official arbiter of whether the U.S. has entered or exited a recession.