LIZ ANN SONDERS: I'm Liz Ann Sonders.

KATHY JONES: And I'm Kathy Jones.

LIZ ANN: 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: Well, before I say hi to Kathy, I just wanted to mention I am on the road and without my podcasting headphones. So if the audio is a little wonky and less clear relative to past episodes, I apologize for that, but we'll plug away. In the meantime, hi, Kathy, how are you?

KATHY: I'm well, Liz Ann. How are you doing?

LIZ ANN: I'm doing fine. So last week we had some updated inflation data come out, and again some members of the Fed have been out talking. So has anything surprised you? What are your thoughts in the past week? Obviously there's been a lot of action in the bond market these days.

KATHY: Yeah, I don't think that the numbers were that surprising. A slight uptick in the inflation numbers got people spooked. And Fed-speak has been much as you'd expect, saying, "We're going to go slow. We're going to be careful. We're going to watch the numbers," etc. I don't think anybody said anything too surprising there. I think overall, we're in the middle of a growth scare, but not the usual type. Usually when we talk about a growth scare, it's a slowdown.

And this is, you know, a rebound. And really ever since the employment report showed that job growth was more robust than expected, yields have been moving higher. And you compound that with the other data, such as the inflation report, and then retail sales came in stronger than expected. And it just paints a picture of a stronger economy than we thought just a month or two ago. And that has changed markets' expectations for inflation and for Fed policy. So you know, throw in a little bit of rising uncertainty about the election and what policy will be after that, and you get a combination that gives you a spike in yields. And until we get the next set of jobs numbers, I think we're probably in for more of this type of action. What about you, Liz Ann?

You know, no matter what you throw at, the S&P 500® is on track for an amazing year. It has had a little bit of a pullback here, but what do you think we're doing as we get close to the end of the year?

LIZ ANN: Yeah, so I think once again, it seems like your world is in the driver's seat for my world with the move up in bond yields. We had a little bit of consolidation that happened in equities when the 10-year first moved above 4%. Now we're looking at around 4.25 as we're taping this. And I think there's some indigestion associated with that. But I think the change in tone in the market that started in the middle of the summer, right around that initial peak in the major indexes in mid-July, and then we had the subsequent correction over the course of the following few weeks into that early August sort of panic low that happened on an intraday basis. That really kicked off this period of rotation. And I think there's some misperceptions about the nature of the rotation that we have seen in the sense that it hasn't been binary. It's not like we saw the Magnificent Seven start to come under some pressure, which we did starting in mid-July, and that there was some consistent theme to what was working in the aftermath of that. Whereas the reality is, is the rotation has happened in a number of different areas. At the outset of that corrective phase, which came in conjunction with the Fed starting to telegraph easing monetary policy. You saw a shift of attention toward the interest-sensitive segments of the market, like real estate investment trusts and utilities and financials. Then when we had some of the stimulus announcements out of China, and we saw a move up in their market, that provided a bit of a lift to those more globally oriented cyclical areas like materials, like industrials. And we've also seen rotations at times back into the mega-cap tech, tech-y kind of names, Magnificent Seven kind of names. So I think that so far the second half of the year has, I think of it almost as rotations happening on the surface versus what was happening in the first half of the year, which were rotations under the surface, masked by just how well the indexes were doing because of the powerful performance on the part of groups like the Magnificent Seven.

Now it's a bit more mixed, but you're seeing these rotations a bit more clearly. So when I talk about believing the broadening and the rotations have legs, it's in the context of that more on-the-surface type of rotations. 

So Kathy, you're in the hot seat again. We're focusing on rates and fixed income again this week. So tell us about our guest.

KATHY: Sure, it's my colleague Collin Martin, who you know quite well. Collin's a director, and he holds a Chartered Financial Analyst designation here at Schwab's Center for Financial Research. His focus is on taxable credit markets. Collin's a frequent guest on Bloomberg TV, Yahoo Finance, he's been quoted widely in financial publications including TheWall Street Journal and Reuters and MarketWatch. 

So Collin, thanks so much for being here today. There's no shortage of things to talk about in the fixed income markets.

COLLIN MARTIN: That's right. It's been an exciting time over the past few weeks. Thank you for having me, always happy to be here.

KATHY: Yeah, it's always the joke about the bond market. It's exciting? People have the question mark in their voices when they hear that. But it has been a busy time, has been a volatile market. And I think before we dive into specifics on the taxable fixed income side, one of the things I think I'd like to discuss with you is our views, because the market keeps changing really fast, and we are coming up on the end of the year when we need to put together our 2025 outlook. And frankly, there's a lot to figure out going forward here and a lot of uncertainty. And I think our views might differ a little bit from time to time. And part of what we do on our team is, you know, coalesce around a point of view and try to reconcile some of those differences and, you know, discuss the whole spectrum of possibilities. So I'm going to start with where do you see the Fed and rates going in 2025?

COLLIN: If we look ahead to 2025, I still see the Fed cutting rates. So when you talk about our views might differ a little bit, it's at the margins. I think we generally have the same outlook there. But as we look ahead to 2025, I do expect the Fed to continue cutting rates. But I think there's a risk that they cut less than the markets initially anticipated, maybe currently anticipated, and what we initially anticipated. And that really stems from just the last few weeks to months of economic data that we've received, that's shown an economy that's a lot more resilient than we expected. So I'm a little bit more optimistic on just the overall economy and what that means for Fed policy. There's a few reasons for that. The first is that the labor-market weakness that we had seen for a while has paused a little bit. And maybe that weakness isn't so weak anymore. Maybe we're seeing kind of a leveling off.

And if we look at things like non-farm payrolls, we've seen a little bit of a re-acceleration over the past few months. It's too early to tell if that's a trend, but the downtrend at least appears to have paused for a little bit. And we saw a modest uptick in average hourly earnings. There's a number of labor-market indicators that we look at. There's still plenty that are showing weakness. 

But most of the data over the past few months appears to show a labor market that maybe isn't weakening much and maybe has improved. And that gets me to my second point where the consumer has been strong and a leveling off or maybe still-strong labor market can support that. If people have jobs, and if they're seeing even modest wage gains, they should continue to spend. And the consumer has been a key driver of economic growth lately. I think that can continue.

And then a final point I have as to why I'm a little bit more optimistic is financial conditions. So even though the Fed hiked rates pretty aggressively, there's a lot of areas of the market that you just don't see that level of tightness. We see stocks continuing to rise, and we're seeing credit spreads low. I know we're going to talk about credit spreads later, but in terms of ease of financing for corporations, it's there. So we're not seeing a level of restriction that has necessarily hindered the plans or potential plans of a lot of corporations. So I see a lot of things that are still pretty good right now. One caveat here: I'm not expecting an acceleration or anything like that. I'm not expecting a sudden surge in growth or a surge in inflation. I think that's important. I think maybe inflation stays a little bit stickier where it is now, maybe the 2.5 to 3% area. Maybe it doesn't go down to 2% as linearly as maybe we expected, but I'm not expecting a reacceleration. I think that's a key point.

KATHY: Well, actually, we're pretty closely aligned then, I guess. I thought that we were a little further apart on things, but I would agree. And I think it's a good point about the jobs report. I mean, that was a huge turning point for the market. We were chugging around, you know, 10-year yield around 3.85 or so. The numbers came. The Fed had done their 50-basis-point cut. The numbers came out, and ever since then, they've been climbing, and then you throw in retail sales, which is pretty healthy, and a number of other reports that suggest, yeah, things are going along OK. I think where I have some of my doubts is now that the 10-year's back at 4.25, the market's not as convinced that the Fed can lower rates. 

I think where I have some of my doubts is whether we are once again extrapolating something that isn't linear, right? So we were extrapolating that drop in inflation to continue in a somewhat linear fashion. We were extrapolating the slowdown in job growth in a linear fashion. And lo and behold, it turns around. Well, markets turned around. Does that then mean that we don't get as much robust growth as had been anticipated? Are we just in another head fake? We had one growth scare on the downside, another growth scare on the upside. And are we just churning sideways with an economy that, yeah, it's doing OK, but it's neither as robust nor as weak as previously believed? And we got a lot ahead of us to go here. But a good point on financial conditions, it does seem as if, although it's tight for consumers at the low end of the borrowing spectrum, and we're seeing that in credit card delinquencies, auto loan delinquencies, etc., but writ large across the economy, it doesn't seem to be tight. So it's a good point. Speaking of financial conditions, let's talk about corporate credit spreads. We all know they're tight. And first of all, explain what credit spreads are so that we're all on the same page, and then why are they so tight?

 COLLIN: Sure, I'll kick it off with what credit spreads are. Credit spreads are the extra yield that a corporate bond offers relative to a comparable Treasury. And it makes sense because if you lend to a corporation, if you're investing in a corporate bond, there's more risk there than lending to the U.S. Treasury note, which is backed by the full faith and credit of the U.S. government. If you lend to a corporation, any number of things can happen with that specific issuer. So you get compensated with slightly higher yields.

As you mentioned, spreads are very, very low right now, historically low. If we look at investment-grade corporate bonds, those are relatively high quality. Those have ratings from AAA down to BBB. Just last week, the average spread of the Bloomberg U.S. Corporate Bond Index made a low that we hadn't seen since early in 2005. So almost a 20-year low. Spreads are so low, really, for the things that we discussed, the economy is strong, the economy is resilient, and we're seeing that with corporations, the corporations that are borrowing money. Corporate profits keep making all-time highs. When we look at corporate profits, we don't look at just the S&P 500 or what the earnings are, we look at a more comprehensive picture because that's who's issuing debt of all credit ratings. And the data from the Bureau of Economic Analysis shows that corporate profits just continue to rise. So corporations are making money.

They have plenty of liquid assets on their balance sheets, so their balance sheets are strong. So lenders, investors just aren't demanding too much extra yield because they're not too worried about the risk of default. And frankly, I'm not either, Kathy.

KATHY: Yeah, I think one of the points that is interesting about this cycle is most companies did not go in with a high level of debt. Or they didn't go in with a high level of expensive debt, right? So rates were so low before the pandemic hit for such a long period of time, companies were able to lock in those low yields. And even when they were borrowing, because yields were low, their ability to finance that debt was much better than we've seen previous cycles typically, if I'm not mistaken. You know the Fed raises rates, their borrowing costs go through the roof, they've already got debt on the books, they can't borrow more, it slows down economic activity, corporate profits go bad, and you end up with this cycle. And this cycle they came in without that much debt or were able to have very low-cost debt.

COLLIN: I think a lot of it, if you look at the diversification of, say, a company's funding, and that's something that I focus a lot on investment-grade corporations. An investment-grade issuer, they generally don't just have one bond outstanding; they'll have a number of bonds outstanding. So when rates rose like they did, it's not like suddenly the borrowing costs for a lot of these companies rose in lockstep. In fact, they had already kind of cleaned up their balance sheets. And in late 2020 and 2021, companies of all credit ratings really rushed to the market to lock in historically low yields, just like in the mortgage market. So a lot of homeowners who've locked in low borrowing costs and might not care too much that mortgage rates are high right now. Obviously, that has a major impact on potential home buyers. But if you're a home buyer who locked in a low rate years ago, it doesn't impact you much. We see that in a lot of instances with corporations. And now, if we fast forward, yields are coming down a little bit. So if companies are looking to issue right now, they're able to issue at yields or rates that are kind of at the low end of their two-year range.

KATHY: So it's a good topic, issuance, because a lot of times when I do interviews or when I talk to clients, the question will be, "Well, what about issuance? Does it matter?" Does it matter how much is being issued? Is it a supply-demand dynamic where the market can't absorb big issuance when yields fall? Where are we on the issuance side of things?

COLLIN: You know, I'd say issuance does matter. I wouldn't want to be too flippant about it and say it doesn't matter. It's not something that I focus on too much. I'd say what I look at is the why. Why is issuance either up or down? Because as you mentioned, Kathy, it really is a supply-demand dynamic. And what we're seeing right now, we're seeing a lot of issuance, especially with investment-grade corporations. It looks like 2024 is set to be one of the largest, most robust years in history in terms of number of debt outstanding, which on one side might seem a little bit confusing because yields are still high. Why would they want to be issuing with yields that are well above where they were just a couple of years ago or really for most of the 10-year pre-pandemic range? But demand is really strong, and a lot of it comes down to demand and how do the terms of that debt look, and that goes down to spreads. And if there's a lot of demand out there, and investors and lenders are willing to lend to companies and are looking to lend to companies, then it makes sense that companies will probably come to market if the terms are in their favor. So that's really what we've seen a lot of lately, and I'd say that's a good thing. If there's a lot of demand out there, that can kind of limit the downside because if there's no demand or limited demand, and things go poorly, and there's no one looking to refinance a company's maturing debt or maybe no one looking to buy a bond that you're willing to sell. That can have pressure on the price, downward pressure on the price. But with so much demand, that can be a good thing for investors.

KATHY: Yeah, and I think the demand probably reflects the fact that people are still looking for yield, right? Although Treasury yields are up, and yields are well off their lows, a lot of investors are just sort of engaging after being in very short-term securities or CDs or whatever and enjoying that 5%, and they're looking to move out a little bit to capture some of these yields, and, you know, if you're looking at 5 to 5.5% in a corporate bond with a high credit rating, that seems like a pretty decent place for a lot of investors to go. And it seems to me that's driving demand. Have you seen that as well?

COLLIN: We have, and hopefully it's because people are taking our guidance because that's something we've been talking about for a while, Kathy, the attractiveness of investment-grade corporate bonds where you can get yields in the, you know, today it's more in the 4.5-to-5% range. If you're looking for 5.5%, you're probably going to have to take a little bit more risk, maybe some low-rated BBBs, or maybe you kind of have to go down into the junk spectrum, which we're not totally against. We think everything in moderation.

But with investment grades, specifically that investment-grade spectrum, we do see a lot of value there, especially for investors who have long-term time horizons and are looking to lock in that 4.5% or 5% yield. I think that's a key thing. And over the past handful of years, we found a lot of investors focusing on very short-term investments. Whether it's a money market fund or a short-term CD, that's a temporary investment. And as the Fed has already cut rate once, that means that the reinvestment risk is very much alive and well right now. And if they continue to cut, it means lower yields for those short-term investments. If you own an intermediate or longer-term investment-grade corporate bond or bond fund, you don't really have to worry about that as much. If you just find that 4.5 or 5% yield attractive, there's ways to earn that for a much longer period of time and not really have to worry too much about what happens with the fed funds rate over the next few quarters.

KATHY: I like that you brought up some of the other parts of the market. I think there are segments of the riskier parts of the market that are pretty interesting. You mentioned below-investment-grade, or junk bonds, and I know we've been kind of neutral there, and those spreads are really tight as well. But one area that we get asked a lot about is preferred securities, and we kind of put those in the fixed income bucket, even though they're kind of a hybrid between stocks and bonds. But they tend to have characteristics of both, and we talk about them quite a bit. Where are we on preferreds these days? What's your outlook there?

COLLIN: We overall have a positive outlook, but future returns might not be great because we've seen yields fall there sharply as well. So there's really two things that I like to focus on, or focusing on right now at least, when I talk about preferreds is, one, the taxation. Now this isn't a blanket statement, but there's a part of the preferred-security market, specifically preferred stocks, that are taxed at more advantageous rates than standard income from bonds. So in taxable accounts, and especially for those in kind of the high tax brackets, preferreds can make a lot of sense relative not just to investment-grade corporates, but maybe also high-yield bonds. And preferreds tend to have ratings in the low-investment-grade to high-junk spectrum. And if I talk about "junk," you alluded to that, that's the sub-investment-grade market ratings of BB or below.

So they generally have higher credit quality than junk or high-yield bonds, but you can get higher after-tax yields if you focus specifically on those that pay qualified dividends. That's always something you want to focus on and talk to a tax professional about, but it's something to consider. Now, one of the reasons why the market has performed well lately, and yields have come down so much is that it's a shrinking market. If we go back to where we were during the financial crisis to where we are today, the amount of preferreds outstanding has declined. So as you mentioned before, supply and demand plays a key role in what something might yield. So those yields have come down. We've actually even seen that accelerate a little bit lately because a lot of preferreds are issued by financial institutions or banks, and preferreds play into a bank's capital plans, what the regulatory reforms from the Fed or from Basel III[PR1] , what those kind of dictate they need to have.

And if those rules get watered down a little bit, then banks don't necessarily have as much of a need for preferreds that they may have had in the past. So we've seen the amount of preferreds outstanding decline a little bit, and that supply-demand imbalance has pulled yields down pretty sharply lately.

KATHY: Yeah, there's a duration issue with preferreds too, right? And that's one that I always try to touch on with people. These are really long-term, and so they tend to have a lot of sensitivity to the movement in long-term rates.

COLLIN: Yeah, Kathy, we could talk about preferreds for a long time. So I tried to make those comments brief, but yeah, they're hybrid investments. And we have a lot of content on Schwab.com about preferreds, but they have characteristics of both stocks and bonds. What's really important is, one, that duration aspect, because a lot of preferreds have no maturity date. They can be called by the issuer, but they don't necessarily have a stated maturity date. Or if they do have a stated maturity date, it's very long. So they're very sensitive to movements in interest rates. So if interest rates rise, they tend to see their prices fall. But they're also highly correlated to U.S. stocks. They have that risk aspect to them. So it's not just interest rates, it's also the health of banks, corporations, and the overall economy. So if we get an environment where the stock market were to decline, it's pretty likely that that preferreds would decline with them. So that's something to be cognizant of as well.

KATHY: So Collin, you mentioned Basel III, which we're familiar with because it's part of the regulatory environment that has really come out of the financial crisis, the original financial crisis in the early 2000s. But for those who aren't as familiar with the terminology, it's a set of regulations. And we will put a link in the show notes so that if you want to learn more about it, you can read an article that describes what that is.

Another area that I think would be worth touching on is TIPS, Treasury Inflation Protected Securities. They're not in the corporate-bond area or whatever, but it's an area that I get asked a lot about. And they're challenging because when inflation spiked up, they didn't perform the way most people expected them to. They performed actually in line with the way they're constructed, but I think that was a shock to people, a very bad shock to people that their TIPS didn't do really, really well when the Fed started tightening policy in response to inflation. So can you kind of walk us through what happened and what your view is now on the TIPS market?

COLLIN: Sure. Yeah, TIPS can be confusing. Before I get into what happened, just a really quick overview of what TIPS are. So TIPS are a Treasury security, but their principal amount, their principal value, is indexed to inflation. So let's say you buy a TIPS right when it's been issued at $1,000. If, over the next year, inflation rose by 10%, that's an extreme example. But if that were to happen, the principal value would rise by 10%. So your $1,000 initial investment would be worth $1,100, and so on. So as inflation increases or even just exists, the value of that TIPS should rise. So that's a good thing in terms of protecting against inflation and trying to kind of maintain with inflation as you consider TIPS. But what TIPS did in 2022, the moment when investors were looking for inflation protection, they did the opposite, and they suffered very, very large price declines. And the key reason for that is the fact that TIPS are bonds. And the standard relationship with most bonds is the inverse relationship between their price and their yield. So in 2022, when yields rose sharply because of that high inflation, the prices of bonds, including TIPS, declined sharply. And then when you looked at TIPS specifically, ultimately the decline in the price more than offset that inflation adjustment. So even if the value of a TIPS increased by 4, 5, 6% over a given 12-month span, the price declines were larger than that. So that, I'm sure, surprised a lot of investors thinking they're getting inflation protection, then inflation surged, and they actually ended up seeing large losses.

KATHY: Yeah, so what about now? I think TIPS are priced for inflation to run about 2 to 2.25% over the next 5 to 10 years. I looked early this morning. If you think inflation is going to exceed that level, would this be a reasonable time to look at TIPS?

COLLIN: Yeah, I think it would be. That's the key consideration when you're examining adding TIPS to your portfolio is how are they priced relative to a traditional or nominal Treasury? The difference in yields is called the break-even spread. So if we use round numbers, if we assume a 10-year Treasury offers a yield of 4% and a 10-year TIPS offers a yield of 2%, that 2% point difference is called the break-even rate. That's what inflation would need to average over the life of the TIPS for it to make more sense than owning just a traditional Treasury. 

So right now, as you said, those break-even rates are in the 2 to 2.5% range. So if inflation were to be higher than that over the next handful of years, then TIPS would make sense. So a lot of it comes down to what your outlook for TIPS is. Generally, we have a loose rule of thumb. We talk about break-even rates of 2% or below, then TIPS tend to make a lot of sense—2% or above, maybe not so much. That's based on the historical relationship of where CPI has been. But if you think that we're in a slightly higher-inflation world right now, then TIPS can make a lot of sense. 

One thing to focus on, or least something that I focus on with a lot of clients, Kathy, is not necessarily that break-even rate, but just the yield it offers. When you look at a TIPS yield, it's already inflation adjusted. So if you look at a yield of 1.5 to 2%, that's kind of where most TIPS yields are these days. That means that whatever inflation averages over the period of you buying that TIPS, you should outperform it by that yield. And if you really are concerned about inflation rising, you can lock in a positive return assuming you own or hold a TIPS and hold it to maturity.

KATHY: So it's a whole different ball game if you're in a fund or an ETF or whatever; we're talking about the individual TIPS right now. That's great, thank you, because that's an area that gets a little confusing and has been a pain point for a lot of investors. I want to wrap this up with, "OK, how are we going to build a bond portfolio in this environment?" So let's pretend you're starting from square one right now.

And I think we're thinking of benchmark duration, meaning something kind of in the middle, wherever your time horizon dictates should be your benchmark duration. Let's say the Aggregate Bond Index is around six years right now. So let's pretend that's everybody's benchmark. How do you approach allocating to on the taxable side of the market? How do you look at investment grade, high yield, TIPS, preferreds, etc.? How do you pull that all together?

COLLIN: So when we look at adding other types of investments, a lot of the times it comes down to valuation. And we talked about that before. What sort of yields are we earning on these different types of investments that have different levels of risk? And when we consider building a bond portfolio or starting from scratch, we tend to favor a core satellite approach. And when we talk about core, those are high-quality bond investments.

It's usually things that are included in the Bloomberg U.S. Aggregate Index, the Agg, which has Treasuries, has agency mortgage-backed securities, it has investment-grade corporate bonds. Those are high-quality investments. We think it always makes sense to kind of start there and focus on those core holdings. If you're in taxable accounts and a high-income earner, then investment-grade municipal bonds make a lot of sense, and you can consider them alongside those other investments.

And then when we talk about the satellite approach, that's where we think about things that we call aggressive income investments. So whether that's a preferred security, a high-yield bond, emerging-market debt, things that have higher levels of risk. How much we want to allocate to that satellite approach, like I said, depends on valuation. So today, the relative value is not very attractive. You're not earning much to take additional risks. So we're focusing, or I would focus more on, the investment-grade parts of the market. 

Like I mentioned, I really like investment-grade corporate bonds because you can earn yields of 4.5 to 5% or maybe even a little bit more. And then when you consider preferreds or high yield bonds, consider them one, in moderation, but two, make sure you have a long-term investing horizon. Because we talked about the volatility that preferreds could have given the credit risk and the long or no maturity dates. With high-yield bonds, they can be very volatile as well if the economy were to slow down or slow down much more than expected. So we're not looking to take too much risk today. You can do it in moderation, but there's probably better entry points down the road for those riskier investments. And so today we'd be focusing more on those highly rated investment-grade parts of the market.

KATHY: Terrific. Thank you, Collin. That's been really helpful, really good. And I'm glad to see that we agree on more than we disagree on these days. More robust conversations to go before we end up with writing our outlook for 2025. 

COLLIN: Yeah, thank you for having me. We have plenty to chew on as we approach our outlook, especially given the uncertainty we have with the economic outlook right now. There's a lot going on in how different this cycle was, so there's a lot we'll be working on over the next few weeks.

LIZ ANN: Well, Kathy, just like last week and most weeks, I want to ask you about the data and indicators you'll be analyzing in the coming week. And in particular, which ones do you think are most relevant?

KATHY: They're all relevant these days, but anything to do with inflation and expectations about, I guess, consumer spending is important. I think in the background, though, we have the Fed's Beige Book. That's the material that's prepared for the next Fed meeting. So we don't have that at the time of this recording. But that's going to be important because we'll have some fuel to see what the various regions are telling us and how they put together the preparation for the next meeting and what the economy's doing. 

And obviously the inflation readings are important. I'm kind of just waiting for the next set of jobs data. I mean, that's probably going to be the big market mover from here. One other thing I would note, though, is we're getting rate cuts around the world. So despite fears that the Fed can't cut or that we're seeing too much robust economic activity domestically, what we're seeing outside the U.S., especially among developed markets, is soft growth, low inflation, and rate cutting. So this is definitely a different cycle for the U.S. than what we're seeing outside. And that's going to have some influence. We're already seeing the dollar move up as a result of that.

And as that continues, that's going to have some influence on our market as well. How about you, Liz Ann? Barrage of election news, which we all probably are at this point trying to filter out as best we can. But what are you watching? And what would you say is the most important thing for investors at this time?

LIZ ANN: Well, I have to agree with you, clearly the inflation and the labor market news. We get, you know, PCE and the big jobs report at the end of the week, so those will be important, but we get some housing data as well. And I think that is increasingly important, and you've seen ebbs and flows, obviously very much tied to some of the movement we've seen in longer-term yields. You had started to see some signs of life in terms of mortgage refinancings and some improvement in terms of the potential for added supply in the existing-home market. But it turned back around in the wrong direction pretty quickly with the recent backup. So we get home price data. And as a reminder with regard to the housing market is we had a housing recession earlier in the pandemic era, but it was a recession on the sales side of the equation, not on the prices side of the equation. 

So we'll have to see whether if we start to see a freeing up on the supply side, whether we start to see some movement down in prices that would obviously be to the benefit of homeowners. We also get mortgage applications and pending home sales. I also think the layoff announcements continue to be important to watch to see whether they continue as they have been to corroborate the better broad job market situation. We've got Challenger layoff announcements coming out. They can be somewhat volatile up and down on a monthly basis, but any real change in the trend there would be something worth watching. And then claims, in conjunction with the monthly labor market report those weekly claims data are always important to keep an eye on. So that's what's on my radar.

So that's it for us this week. As always, thanks for listening. You can always keep up with us in real time on social media. I'm @LizAnnSonders on X and LinkedIn. As a reminder, I'm not on Facebook. I'm not on Instagram. I'm not on WhatsApp. I'm not on Telegraph or Telegram or whatever the heck that one is called. Those are all imposters, if you think it's me. And if you want to find any of our written articles, other reports, videos, please check them out at schwab.com/learn.

Those are all publicly accessible. You don't need to be a client to view them. Even if you are a client, you don't need to log in. You just need to go on Schwab.com to have a look at those.

KATHY: And I'm @KathyJones. That's Kathy with a K on X and LinkedIn. And if you've enjoyed the show, I really would appreciate it if you'd leave us a review on Apple Podcasts, a rating on Spotify, feedback wherever you listen. You can also find us for free in your favorite podcasting app. We'll be back with a new episode next week, so stay tuned.

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