The latest episode of On Investing1 from Charles Schwab & Company opens in a familiar place for 2026-era markets: calm on the surface, unresolved beneath it. Liz Ann Sonders and Kathy Jones begin with monetary policy and market structure, before widening the lens with 22V’s Dennis DeBusschere to examine productivity, AI, the dollar, factor leadership, and the evolving relationship between stocks, bonds, and inflation.
What emerges is not a single dominant narrative, but a regime shift—one where markets are adjusting to broader leadership, orthodox monetary policy, and a world in which diversification no longer behaves the way investors were trained to expect.
A Fed Transition Markets Are Watching—Quietly
The conversation begins with the nomination of Kevin Warsh to replace Jerome Powell as Chair of the Federal Reserve. Jones notes that the bond market’s reaction has been muted.
“I think appropriately, the market’s taking a bit of a wait and see approach. You know, bond yields really haven’t moved all that much.”
That calm reflects uncertainty, not confidence. Warsh has long argued for a smaller Fed balance sheet, believing it has favored Wall Street at the expense of Main Street.
“That sounds like a good slogan, but it’s going to take some convincing… to change the Fed’s operating structure.”
Jones emphasizes the institutional inertia involved.
“There’s a lot of staff at the Fed that works on these economic models… he’s going to have to have a pretty robust set of models to say you’re doing it wrong.”
Even if rate cuts follow, the real economy may see little benefit unless longer-term yields move in tandem.
“If the long end doesn’t come down alongside the Fed funds rate, the Fed funds rate isn’t really tied to consumer borrowing rates.”
Housing remains especially exposed.
“Mortgage rates are tied to 10-year Treasury yields… if you reduce the balance sheet… that is not going to help the mortgage market.”
The Yield Curve Is Steepening—for Structural Reasons
Jones describes the dominant fixed-income trend succinctly.
“The dominant trend in the bond market really has been steeper yield curve.”
Long rates are rising on the back of fiscal stimulus, persistent inflation, global yield pressure, and a weaker dollar, while the front end still prices in a possible Fed cut.
“That’s really kind of the sum total of what’s going on.”
Markets are not signaling panic—but they are signaling constraint.
Powell, Institutions, and the Quiet Importance of Continuity
Sonders asks whether Jerome Powell might remain on the Fed as a governor after stepping down as Chair. Jones suggests the answer may depend on institutional risk.
“If he believes that the institution of the Federal Reserve is somehow at risk… he is an institutionalist… and would stay as a way of counterbalancing that.”
The key takeaway: this is not a fast-moving policy transition.
“Markets like to react in the moment to news. I think this is a slower process.”
Earnings Season and the Mechanics of Market Breadth
Turning to equities, Sonders frames earnings season as the anchor in an otherwise data-distorted environment.
“The takeaway so far from earnings season is that earnings growth continues to be strong.”
But the real story is where that growth is occurring.
“We’re starting to see that earnings growth get spread amongst a broader swath of industries and sectors.”
Mega-cap tech remains important—but its dominance is fading at the margin.
“You have a decelerating pace of earnings growth for… the Magnificent Seven… and… an accelerating pace of earnings growth for the rest of the market—the other 493.”
Breadth metrics confirm the shift.
“Over the past year only 17 or 18% of the constituents within the S&P have outperformed the index itself… over the past month that’s actually a little more than 50%.”
And technically:
“All but one of the 11 sectors within the S&P had at least 50% of their stocks trading above their 50-day moving average.”
Sonders frames this as a healthier market structure.
“When you have more soldiers at the front line and not just the generals… you still have a decent front.”
Precious Metals: FOMO, Leverage, and Violent Clearing Events
The Warsh announcement coincided with sharp volatility in gold and silver—an overlap Sonders does not dismiss.
“Positioning had gotten incredibly one sided. FOMO had kicked in.”
The turning point came when leverage was abruptly repriced.
“The CME decided to raise margin requirements… levered players were… forced to liquidate positions.”
Jones draws a direct historical parallel.
“It harkens me back to when the Hunt brothers cornered the silver market back in ’79 and ’80… the fever didn’t really break until the margins were raised.”
Both emphasize how difficult fundamentals are to pin down.
“Fundamentals in precious metals are very hard to measure.”
And Sonders highlights the real-rate mechanism.
“Gold doesn’t have a yield… when real rates go up… there’s less incentive to own a non-yielding asset.”
The consensus: volatility is not over.
“I do think it’ll be volatile for a while.”
Enter Dennis DeBusschere: Productivity as the Cycle’s Anchor
DeBusschere widens the discussion to the macro foundations of the current cycle. His starting point is balance-sheet strength.
“The private sector is in surplus… that makes it easier for the US economy to absorb shocks.”
But the real differentiator is productivity.
“Productivity growth has been extremely strong—and it has not been related to AI.”
Instead, he argues COVID forced firms closer to the efficiency frontier.
“It was a forcing function to move companies closer to the efficient frontier using existing technologies.”
This matters because labor growth is structurally weak.
“The break-even payroll growth rate… is estimated to be close to or near zero.”
Without productivity, growth would stall.
“If productivity growth ends up disappointing, it’s going to be a problem.”
The Dollar, Deficits, and Why Repricing Is Rational
On the dollar, DeBusschere pushes back on political explanations.
“There’s very real macro forces that justify a weaker US dollar.”
Namely: rising fiscal deficits and a large current account gap.
“Some asset in an economy needs to reprice… typically you would see the US dollar reprice, which is exactly what is happening.”
This also supports international and small-cap outperformance.
“The same logic… applies to owning small caps and mid-cap stocks in the US.”
AI, Capex, and Why Breadth Has Structural Support
DeBusschere is unequivocal on breadth.
“The short answer is absolutely yes.”
AI capex is continuing—but leadership is fragmenting.
“It’s getting harder to pick winners and losers within the mega caps.”
Meanwhile, beneficiaries extend far beyond tech.
“A lot of mid and small cap stocks… in the energy, industrial, material spaces should benefit.”
Sonders adds a crucial layer.
“We’re in the cultivate phase of AI… who are the beneficiaries of AI?”
Usage, not hype, is now driving margins and productivity.
“You’re seeing margin expansion within those names.”
Factors, Fundamentals, and the End of Easy Momentum
In a “normal” expansion, DeBusschere argues, fundamentals matter more than price behavior.
“Fundamental factors… typically do a lot better.”
Last year’s momentum surge was anomalous.
“That was very odd historically… and that has faded.”
Risk factors may lag—but they are not collapsing.
“I wouldn’t be short the riskiest baskets.”
Orthodox Monetary Policy—and Why Bonds Are Calm
DeBusschere challenges the idea of a politicized Fed.
“I think monetary policy is probably going to be very orthodox.”
Markets agree.
“If we were pricing unorthodox monetary policy… you would have seen inflation expectations go up a lot.”
Instead:
“Cross-asset, you’re seeing orthodox monetary policy priced.”
Inflation: The Dominant Risk, Not Growth
The biggest left-tail risk is not recession—it’s inflation.
“The governing factor on the cycle is inflation, not growth worries.”
If productivity disappoints:
“You would have an aggressive tightening of financial conditions… probably led by the AI names.”
He assigns meaningful odds.
“Call it 20% odds.”
A New Regime for Stocks, Bonds, and Diversification
Sonders reframes the long-term question: are we leaving the Great Moderation behind?
DeBusschere is clear.
“We are in a fire regime relative to an ice regime.”
In this world:
“Bonds are not diversifying.”
That helps explain interest in alternatives—and even IPOs.
“Where’s the money going to come from?… bonds… they’re not diversifying anymore.”
Still, bonds retain a role.
“It’s still a recession hedge.”
Tails: A Productivity Gap—or a Productivity Boom
The downside scenario is stark.
“AI is not impacting productivity yet… inflation… 3%… 1% GDP.”
Markets would reprice sharply.
The upside is transformative.
“You can sustain higher wage growth without inflation being an issue… real incomes go up.”
When pressed, DeBusschere is optimistic.
“Much higher odds on the right tail.”
Closing Thought: Instability as the Defining Feature
As the episode closes, Sonders returns to a theme that ties everything together.
“Instability… can compress optimism and a willingness to commit longer term.”
Markets are not broken. But they are relearning how to function in a regime where productivity, inflation, and diversification no longer follow old scripts.
For advisors and investors, the message is clear: breadth is back—but it’s being powered by deeper forces than simple rotation.
Footnote:
1 Liz Ann Sonders, Kathy Jones. "Breadth Is Back: What's Powering Markets Beneath the Surface (With Dennis DeBusschere)." Schwab Brokerage, 6 Feb. 2026.
