By any measure, this was a deceptively quiet week—shortened by Presidents Day, punctuated by a “cooler than expected” inflation print, and capped by fresh Fed minutes. But beneath the surface, the conversation among Charles Schwab’s Liz Ann Sonders, Kathy Jones, and Kevin Gordon reveals an economy suspended between stabilization and stagnation, productivity and demographic drag, AI acceleration and market fragmentation.

As Sonders framed it at the outset, “we've had lots of mixed signals in the economy.” The minutes only deepened that tension.

This is not a cycle that fits neatly into precedent. It is a cycle defined by freezes, divergences, dispersion—and a Federal Reserve that may be less predictable than markets assume.

The Fed: From One-Sided to Two-Sided Risk

Jones zeroed in on what she considered a subtle but critical shift in tone within the Fed minutes.

“Several,” she emphasized—“so these words are important—‘some,’ ‘several,’ ‘many’—these are all kind of code words for how many that means.” The takeaway? “Several people were noted wanting to shift to a two-sided way to describe the Fed's outlook, meaning we might hike, or we might ease.”

That nuance matters.

Markets, she noted, had leaned aggressively toward rate cuts after the softer inflation data. “It really kind of moved short-term rates down in anticipation of rate cuts.” But if the committee now views risks as symmetrical—up or down—the certainty around easing evaporates.

And there’s more.

“The description of the labor market,” Jones said, suggested that “most of the participants at the meeting were of the opinion that the labor market has stabilized.”

That is a profound pivot. Recall: “The reason the Fed cut three times last year was because they were concerned about the labor market.” If stabilization is now the baseline, inertia becomes policy.

“I don't think the market is correctly priced for that outcome,” Jones concluded.

In other words: rate cuts are not a done deal.

Independence, Dispersion, and a Non-Lemming Fed

Sonders saw something else in the minutes: reassurance.

She argued that visible disagreement—“more dissents,” “a wider spread in terms of the opinions”—is a feature, not a bug. It “helps to alleviate some of those concerns about Fed independence, because it suggests that they're not a bunch of lemmings.”

In a climate where political pressures loom, that independence matters. A fractured Fed may complicate messaging—but it reinforces institutional credibility.

Soft vs. Hard: The Economic Disconnect

Beyond policy, the economy itself is sending contradictory signals.

Sonders described “an ongoing disconnect between the soft economic data and the hard economic data.” Survey-based metrics reveal “much more nervousness, pessimism,” while hard data remain “relatively strong.”

Complicating matters further:

• Industrial data show upside surprises paired with downward revisions.
• Survey response rates—especially in the household survey—have deteriorated.
• Revisions have grown increasingly material.

The data are not merely mixed. They are volatile.

Meanwhile, GDP remains supported by capital expenditure, particularly AI-related investment. That led to Jones’ pointed question: how much of growth has actually been driven by AI capex?

AI Capex: Myth vs. Contribution

Gordon responded with precision.

“There’s not a specific AI carve-out component,” he noted. But business investment—especially in hardware, software, and computing—can serve as a proxy.

In the first and second quarters of last year, those contributions were near late-1990s highs. But the narrative that AI alone carried GDP was, in his words, “a little bit of a myth.”

“Two things can be true,” Gordon explained. Yes, AI-related components made near-record contributions. No, they were not the only driver. Consumer spending, though slowing, remained positive.

Now the picture is evolving.

“It’s probably safe to say that consumption didn't end in a very strong way last year,” Gordon observed. And that softening aligns with the labor market slowdown.

The result? Business capex is carrying more of the burden.

“Fortunately, or unfortunately… we still have the business investment component that's been driving a considerable amount of growth.”

That concentration introduces fragility.

The Frozen Labor Market

Perhaps the most striking theme of the discussion was Gordon’s characterization of the labor market as frozen.

Companies have curtailed hiring but avoided mass layoffs. That stasis has prevented recession—but not weakness.

“We've kind of learned over the past couple of years that you could stay in this frozen state for labor and not have to go into what is thought of as a traditional recession.”

January’s jobs report was strong—but, as Gordon cautioned, “January is always a funky month.” CPI was similar: solid headline, troubling internals.

This cycle refuses to conform to historical templates.

“We don't really have anything to base it off of when it comes to history,” Gordon admitted. “So we just sort of have to take it as the data roll in.”

Tariffs: The Pass-Through Question

Tariffs add another layer of complexity.

Companies buffered earlier cost pressures through inventory front-running and margin protection—cutting hiring to preserve profitability. But are we approaching another wave of pass-through?

Gordon highlighted the January surge in “core-core goods” inflation—excluding energy and used vehicles—as “incredibly hot.”

While services disinflation has offset goods pressure, the risk remains.

If consumers “balk at the price increases” and revenue growth slows, the freeze could thaw—in the wrong direction.

Productivity vs. Demographics

Strip GDP down to fundamentals and the equation becomes stark: productivity plus labor force growth.

Here, Gordon delivered one of the conversation’s most striking statistics.

“We only had 181,000 jobs created in 2025. And… that was the second weakest year on record” outside of recessionary contexts.

That implies one thing: productivity did the heavy lifting.

“It very well could be the case that 2025 was an amazing productivity year.”

But that productivity surge is offset by demographic gravity. Net migration is projected to fall into “the low 300,000 range for 2026… essentially nothing when you look at it relative to history.”

A historic decline in net migration constrains potential GDP. AI may boost output per worker—but there may simply be fewer workers.

As Sonders and Jones joked when Gordon floated the idea of boosting older-worker participation: “No way, Kevin, it's not happening.”

The humor masks a structural reality.

Markets: Dispersion, Rotation, and the AI Cascade

If the economy is fragmented, so too is the market.

Sonders described “a lot of dispersion within the market,” with “a very wide spread between the best performing stock in the S&P this year and the worst.”

More striking: a simultaneous rise in technically overbought and oversold stocks.

This is not broad-based momentum. It is rotation—rapid, thematic, and often unforgiving.

At the center lies AI.

Sonders outlined the firm’s “three C phases”:

1. Create – large language models and hyperscalers.
2. Catalyze – data center and energy buildout.
3. Cascade – diffusion through the broader economy.

Now in the cascade phase, investors are scrambling to identify both beneficiaries and casualties.

Gordon warned that societal benefit does not equal index concentration.

“The broader societal and economic benefits don't necessarily equate to cap-weighted index level benefits on the same scale.”

Software’s relative performance has erased “six years of relative gains.”

In short: diffusion may dilute index leadership.

Fixed Income and Credit Signals

On the bond side, Jones noted that AI capex has fueled debt issuance. Credit spreads remain tight in investment grade—balance sheets are still strong.

But in leveraged loans and private credit, she sees stress building: “a lot of concern about too much leverage in this area.”

Meanwhile, she raised a historical wrinkle: “There's never been a time when the Fed has cut rates when nominal GDP was running 5%, 6%, except in 2000.”

Nominal growth remains a powerful counterargument to imminent easing.

Dow vs. S&P: Structure Matters

Sonders also addressed a tactical curiosity: the Dow’s outperformance.

The explanation is structural. The Dow is price-weighted and less exposed to mega-cap tech. In a year where tech lags and industrials and defensives outperform, that composition matters.

Index construction is not cosmetic—it shapes returns.

Key Takeaways for Advisors and Investors

1. Rate cuts are not guaranteed.

The Fed is shifting toward “two-sided” risk. Stabilization in labor reduces urgency.

2. The labor market is frozen, not broken.

Hiring is subdued but layoffs are contained. This is not a traditional recession dynamic.

3. AI capex is meaningful—but not singular.

It has driven growth, but consumer spending still matters. Concentration risk is rising.

4. Tariff effects may not be over.

Goods inflation bears watching, especially if pass-through accelerates.

5. Productivity is carrying GDP.

But demographic constraints—particularly weak net migration—limit potential growth.

6. Market dispersion is extreme.

Overbought and oversold conditions coexist. Rotation is rapid. Discipline matters.

7. Index structure influences outcomes.

Dow vs. S&P divergence reflects weighting mechanics, not magic.

8. Nominal GDP complicates Fed easing.

Historically, cuts amid 5–6% nominal growth are rare.

The through-line of the conversation is not alarmism—it is humility.

“This is such a unique cycle,” Gordon said.

In cycles without precedent, conviction must be paired with flexibility. For advisors and investors, that means diversification, discipline, and resisting the temptation to chase every new “shiny object.”

• Because in this market—like this economy—dispersion is the rule, not the exception.