This Week's CPI Data and the State of the Economy

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're going to bring you our analysis of what's happening in the markets and how it might affect your investments.

On today's episode, I'm interviewing someone I've known a really long time, someone who I think has had a similar mindset when it comes to thinking about markets—and that's Nancy Lazar, who is chief global economist at Piper Sandler. I wanted to get her take on the pressures we're seeing in the labor market and what some of the other indicators might be saying about where the economy is headed.

KATHY: I'm really looking forward to that discussion, Liz Ann, since those are such hot topics right now. For my segment, I'll be talking with my colleague, Collin Martin, about the state of the corporate bond market and particularly investment-grade corporate bonds.

LIZ ANN: Well, given the connectivity between your world, his world, and my world of equities, I'm really looking forward to hearing that discussion. But before we get to the interviews, let's talk a little bit about a very interesting week this past week. Maybe a big "duh" here, but what's stood out for you this past week, Kathy?

KATHY: Well, the big one. It was the CPI report. Led to a very big rally in the bond market—sent yields down to the lowest they've been since about September. And, you know, it really came in just a little bit lower than expected. But I think the big reaction was due to the fact that sort of across the board, it indicated that the momentum in inflation is fading, that we're on the right track, presumably, for getting inflation back towards the Fed's target. And that really shifted a lot in the market and has shifted expectations about where the Fed is going over time and where long-term yields are going over time. So there are lots of other things. PPI was out. That's the Producer Price Index versus the Consumer Price Index. That was maybe not quite as great, but overall, the CPI number, consumer prices, was the big feature of the week. What about you, Liz Ann? What have you been up to since the last time we talked?

LIZ ANN: Well, those were big reports on our end of things, too. You just had a ripper of a market rally on the CPI release. And what was interesting is you really saw a push higher in areas that have not really participated much over the past year or so, like the Russell 2000 Index of small caps. And I think that's a function of a view that maybe the Fed is in pause mode and that some of the pressure of higher yields, which is borne, as we'll hear from Collin, more on maybe less credit-worthy companies. I think that gave that a lift.

But we also focused a lot in the past week, both in terms of our views with regard to market behavior in the middle part of the week, but just in general on the bias within the cap-weighted indexes like the S&P and the NASDAQ of the Magnificent Seven. And we wrote a report just this past Monday that is still posted on Schwab.com called "Roller Coaster." And it highlights a lot of that concentration effect, the why behind it and maybe some of the risks, but also opportunities associated with that bias in performance. So definitely have a look at that.

So that's where we are in the markets now.

LIZ ANN: Well, I'm excited. Joining me now is Nancy Lazar, who I've known for several decades. Nancy is the chief global economist at Piper Sandler and leads the economics research team there. Now, before joining Piper Sandler, she co-founded Cornerstone Macro, Wall Street's premier macro boutique. Prior to Cornerstone, she was co-founder and vice chairman of ISI Group for more than 20 years. Nancy has been an Institutional Investor–ranked economist since 2001, placing in the top two the past 10 years and ranking number one in 2015. Nancy was named to Barron's 100 Most Influential Women in U.S. Finance in 2020, '21, '22, and '23. I love that one, but admittedly I'm biased because I've been on that list for those four years as well.

I'm going back even further, prior to co-founding ISI in 1991, Nancy was senior vice president at CJ Lawrence. She is a graduate of Kalamazoo College in Michigan and is a member of the Economic Club of New York, New York Forecasters, Money Marketeers, NYABE, NABE, and Women in Finance and Housing.

Nancy, thanks so much for being here. I want to start with your perspective on the economy. So start big picture—amid the ongoing recession-versus-soft-landing debate. You may know, we've had this conversation, we've taken a more nuanced approach to defining this cycle using "rolling recession" as a descriptor, given what really have been hard landings already having occurred for several key segments of the economy. And I know you've had some unique views, but what is your current view on recession or not?

NANCY LAZAR: Yeah, well, I think we will have a recession. We've called it a slow dance into a recession. As we did our 2023 outlook now about a year ago, we had some incremental tailwinds for the economy for the first half of 2023. Oil prices came down in the fourth quarter of 2022. You still had some fiscal stimulus supporting the consumer going in the first half of 2023. On balance, we called it legacy liquidity—excess savings, keeping the economy afloat. But our models pointed to still a hard landing. That is whenever you've had an egregious Fed tightening cycle and banks tightening lending standards and elevated unit labor costs, which we indeed did have, you've always had a recession, not a soft landing.

And so our forecast has been for a recession to unfold in the second half of this year. Obviously, it didn't occur in the third quarter; but there are some pretty dark clouds forming here as we end the year. And if we're off by a quarter, certainly we still think the long leading economic activity drivers still point to a recession unfolding sometime here later this year into early 2024.

LIZ ANN: You know, Nancy, you mentioned legacy liquidity, which is terminology you've used quite a bit in your reports. So tie that into the health of the consumer. There's still a lot of, I think, conflicting messages.

As you and I are taping this, I just got back from Las Vegas this past weekend. Not to gamble. I never gamble. I hate gambling. I don't like a casinos, but went to see U2 at the Sphere. And one thing that I noticed was, you know, flights were packed, restaurants were packed, casinos maybe not as much, but literally nobody in the retail establishments. So that was just my most recent observation about the consumer. But talk about your perspective on the consumer given all these crosscurrents and how it ties into the terminology of legacy liquidity that you use.

NANCY: So two factors. One is the government sent out an awful lot of stimulus via checks and extra transfer payments. And that was not all spent by the consumer. And as a result, they built up excess savings. And they've been able to spend that. Now, it's become very, very lopsided. The lower- to middle-income consumer has pretty much spent all of that excess savings. And it's really that high-end consumer, which is maybe more of what you saw in Las Vegas. It ain't a cheap place to go. It is that high-end consumer who has still that bucket. In addition, there's a little bit of this pent-up demand for leisure and hospitality still, given the COVID lockdowns and that we still have this extra desire to travel because we couldn't do it for so long. So one bucket is that excess savings. Now very, very tilted toward only existing on the high end.

The lower-end consumer, that's been pretty much eroded through higher price points. Maybe inflation has slowed, but price levels are very, very high. Employment gains are starting to slow, and so that lower end consumer doesn't have it. At the same time, the job market is still, also, although things have cooled off in the job market, people are still getting jobs, they are getting wages. So the level of nominal income is also still elevated. And that's directly tied back to corporate revenues are still elevated. And so companies aren't under the gun to really cut costs aggressively. So it's just the lagged effects of the massive amount of monetary stimulus in the hands of companies and still in the hands of some consumers. And it takes roughly two years for a Fed tightening cycle to really squeeze that out. So it doesn't mean we're not going to have a recession, but it certainly helps explain why, up until recently, things have been pretty good.

LIZ ANN: Yeah, you and I are very much on the same page there. I read something on one of your reports that definitively said it's not taking longer than usual for the economy to weaken in terms of just the feeder from changes in the fed funds rate to lending standards, to revenues, to earnings typically in that order. And the terminology that we've been using is we're not "past the expiration date," whether it's related to those forces as they work their way through the economy or the inversion of the yield curve or the weakness in the leading indicators. So we're still within that timeframe. But is there something that stands out to you as making this cycle particularly unique, even in the context of we haven't passed the expiration date?

NANCY: Well, one to me is a surge in price levels. When you talk to economists or strategists like you and I, it's like, "Well, inflation has slowed." But to the normal consumer, when they go to the grocery store, we have never seen a spike in price levels this egregious in such a short period of time—certainly not in our long careers. I'm not even sure back in the 70s we had these spikes from milk prices to candy to food to restaurant to airfares. It's been pretty much across the board. First and foremost, it was a function of the shipping disruptions that we had, the supply-chain disruptions that we had, but then it was able to be sustained because of the massive amount of both monetary and fiscal stimulus, making inflation much stickier than I think we've seen in the past. And it's really that price level and the stickiness of inflation.

LIZ ANN: I think that's so important because as analysts, as strategists, as economists, we're trained to look at rate of change. And we all obsess as market analysts and economic analysts at things like the month-over-month change in CPI or core CPI. But that's not what the average consumer focuses on. They're not in the weeds of month-over-month or even year-over-year. They're focused on level, and things are still more expensive than they were prior.

Now, even Jerome Powell at the Fed sometimes gets at this and addresses it, but I wanted to now shift to perspective on the Fed and the traction we've already seen in terms of some disinflation, even if it's not fully appreciated by the consumer. So let me ask a really pointed question. Do you think the Fed is done?

NANCY: No.

LIZ ANN: And that means like one more, two more this year? What's your perspective on the near term in terms of trajectory? And then also your thoughts on 2024 and expectations still embedded in market positioning for an actual pivot to cuts happening as soon as the midpoint of next year.

NANCY: So one more this year. And as far as the path for next year, I think it's going to be a function of what nominal GDP does. We've had this rule of thumb going back to the '60s, which was that, historically, during every Fed tightening cycle but one, which was a false dawn, i.e., huge mistake, Fed funds exceed nominal GDP growth. It's dynamic; it's not static. Nominal GDP growth is inflation plus real. It's what actually is given. It's nominal minus inflation that equals real. It's what's created with monetary and fiscal policy. And you've needed that cost of capital to get higher than the growth of kind of countrywide revenue growth to change both business and consumer behavior. You've had it on the long end, but you've not had it on the short end. Well, even the long end now has come back down, so maybe you don't have it there either.

So you need to have higher rates to really change corporate behavior, to get the unemployment rate up on a sustained basis, to get inflation down on a sustained basis. And we're not quite there. And so nominal growth this year, quite frankly, has been a little stronger than I would have thought in the third quarter. It was still up 6% year-over-year, 8% quarter-to-quarter annualized. And so we're not there. And that's keeping inflation stickier through keeping the job market unemployment rate incrementally lower.

LIZ ANN: Yeah, I want to stay on the job market. We often at Schwab remind investors of the lagging nature of many key economic inputs, especially when revisions are taken into consideration.

So talk about that. Talk about what we didn't officially know back at the outset of the global financial crisis but know so clearly now with the benefit of hindsight and with the benefit of those revisions. And obviously I'm asking in the context of what we're seeing on the surface because of those revisions that we now just assume we knew at the time, which of course we didn't.

NANCY: Our view has been—what you need is a year of declining corporate real revenues. We started to see real revenues stall, but they've not yet declined. What you need to see is a clear decline in consumer confidence, which you've seen from University of Michigan, but not from Conference Board. But maybe you're close. Unemployment claims were not that useful of an indicator telling us we were going into a recession in 2008. What was useful was our daily measure of consumer confidence. And in addition, continuing unemployment claims today are telling us that the labor market is deteriorating more than initial unemployment claims are. And that's a reflection of—you're not really getting the layoffs, but it is becoming more difficult to get a job.

LIZ ANN: So you obviously believe a contraction in jobs is coming, and you've homed in on four specific reasons. So I'd love the details of those. How much do you think the weaker-than-expected report that we just got for October is sort of a canary when you think about the various metrics? And then I'm hoping you could also tie in your thinking on the various so-called rules associated with changes in the unemployment rate, like the Sahm rule, and whether you think that still holds in this environment or whether there are some adjustments that people should be making.

NANCY: So I do think that the employment report we saw is a canary in the coal mine. Why is employment starting to more clearly weaken?

First and foremost, it goes back to corporate revenue. Corporate revenue growth has slowed after being up 20 percent year over year. It's now up about 3.5 percent year over year. It's still positive, and so you still have some jobs being created, but the first derivative has unfolded.

And based on the lagged effects of the Fed tightening cycle in SLOOS[1], you're going to continue to see SLOOS being banks willingness to make loans. You're going to continue to see corporate revenues not only slow but decline as we go into 2024. And if you start pulling companies apart, you are seeing revenues start to flatline for Apple and decline for Hasbro, a toy company. So once companies start to see that deterioration in their revenue growth, they start to be more focused on costs.

And real revenues, which is really where you get the connection with employment, have actually stalled out now for about a year. And that's a similar pattern that you had going into the 2008 crisis. And that was the first step to seeing a deterioration in the labor market as you went into 2008. So one is corporate revenues.

Second is—you have CEOs who see this. A CEO does not want to talk cautious on an earnings call for obvious reasons. They talk cautious, and boom, their stock gets hit. I love to watch business confidence. The community is very focused on the consumer. They call it a business cycle for a reason. Businesses drive the cycle. And when you look at business confidence, it's clearly deteriorated, and they are planning to pull back on jobs. So that's the second reason. Business confidence is down.

Third, you have bubbles within the job market. Sectors of the economy that over-hired because they were huge beneficiaries of initially the stay-at-home situation. Retail, e-commerce, and they are just now starting to unwind those excess hiring plans, and you're seeing downward pressure on jobs in those areas.

And then fourth, even that pent-up demand in the service area is starting to fade in part because prices are so high, and you see that very clearly in restaurant hiring, which has stalled out.

So employment should be starting to deteriorate, it is starting to deteriorate, and again, the timing. If you look at historical periods, on average it's taken roughly two years with a range of one to, in the case of 2004-2008, almost three years for Fed tightening cycles to really start to create.

So it's all over the lot—long and variable leads is so true historically. And then you have to look for these landmarks that tell you that you are at the stage of the deterioration with the unemployment rate ticking up to 3.9 percent, is a further timer in that direction.

An economist at the Federal Reserve highlighted several years ago that, when you look at a three-month moving average of the unemployment rate, when it goes up 0.5 percentage points, you have always had a recession. We're currently at 0.3 percentage points. Click to click, point to point, we're up 0.5. Given the leads, we're going to get that 0.5 in the next month or two, so that will then further confirm that we could very well already be in a recession as we end the year, enter 2024.

LIZ ANN: Yeah, so clearly as companies face the top-line problem, which has been a problem for a bit of time now and maybe increasingly on bottom line, there comes in the discussion of profit margins, and the profit margins have already started to compress. I think the peak was around 16% now down to 13, and I saw a chart in one of your reports about the pretty consistent tendency for them to just descend sort of to the 7% area, maybe with the exception of the 2020 very, very short-lived COVID-related recession.

So do you think profit margins have significant more downside to go, and how could productivity step in here? Is productivity—could it, for lack of a better phrase, sort of save us this time, whether it's AI related or just general productivity gains?

NANCY: Well, profit margins, we think, are very, very vulnerable here. And it's part because of this liquidity illusion, keeping the level of corporate revenues higher for longer, lowering compensation costs relative to revenues. And so I am very worried about the profit margin outlook going into 2024. We saw it in 2022 with some of the tech companies who have no pricing power, are very heavily tied to the ad sector. And all of a sudden, ad spending dried up. They had hired a boatload of people, and their profit margins implode, and their stock prices reflect that. So I think we have an example of what is at risk going forward in 2024 from those tech companies.

Now they did the right thing. They very quickly cut costs, they improved their profit margins, lowered their compensation costs, and the stocks reflected it. They're unique. Very few companies have done what they did. And so yes, I'm very worried that companies aren't cutting costs quick enough given this downward pressure on revenue. In addition, their unit labor costs are very elevated, which will also put downward pressure on their profit margins.

No, I don't think productivity can save us. There is a view that if productivity picks up, then inflation slows. But that's where it's important to define what productivity is. Productivity is output per man-hour. And output is literally related to GDP growth. And our point is that the leading indicators, real GDP is going to go down because of Fed tightening and SLOOS and the other factors. So the only way to improve productivity in this environment is by cutting costs. And you do that by slowing the growth in employment, which they've already done, and reducing the number of hours people work, which they've done dramatically. And so it's not clear how much more they can actually pull back on the number of hours people are working. And so this next leg has to be employment. So yeah, productivity can save us as far as helping to lower inflation, but it doesn't prevent us from having a recession. In fact, productivity always accelerates in a recession.

LIZ ANN: All right, assuming recession and given the pressures you have outlined, but tied into your comments, specifically the labor market about bubbles, that's often tied into some of the work you've done on zombies. And the fairly large percentage of zombie companies that clearly are a bit of a vestige of the zero-percent-interest-rate environment. Are we on the cusp of basically seeing the demise of many companies that were able to stay afloat simply because of the generosity associated with zero-percent interest rates?

NANCY: So we think we will have a clear negative default cycle concentrated in the junk sector. That's where maturities are record lows of less than five years. And so yeah, you've already started to see some of these companies reset—PEPCO at the end of September, I think, reset from 3.5 to 9 percent. That's obviously more than a double. And so we think it's going to be concentrated within the junk sector of the bond market and at the lower income of the consumer cycle. So just because BAA spreads haven't yet blown out doesn't mean we're not going to have a negative credit cycle. They're not really good leading indicators. And so yeah, as you tip, or at that tipping point, we think we will have a negative credit cycle with the zombie companies certainly leading the way.

LIZ ANN: I hate to end on a dour note. So I'm taking my Debbie Downer hat off and asking you to do the same. And just a really big picture question on when you think longer term, where do you find optimism? Where do you see clear skies in terms of your longer-term outlook on the economy?

NANCY: So I think it's necessary to have recessions—I'm going to get positive—to get rid of these excesses, rather than to allow these excesses to get so large, say, as our mortgage-debt bubble did, and then to create a catastrophic economic environment. So getting a classic recession with a 200-basis-point increase in the unemployment rate, I can get very bullish on the other side of the equation. We are the leader in the digital world. We are the leader in artificial intelligence. We are benefiting hugely from on-shoring—manufacturing renaissance theme, which we've been talking about for over a decade.

Those are really important positives because, one, they increase productivity the right way, improving efficiencies, improving profit margins, and they encourage companies to hire. Two, you actually hire a broader footprint of people if you have a renaissance because you have anywhere from blue-collar to obviously white-collar jobs, which we lacked from 2000 through 2010.

And so the United States, we believe, is indeed the leader of global growth as we squeeze these excesses out of the economy, where you can have healthy, real growth, not this dysfunctional, secular stagnation, and low inflation, tinges of the 1990s, back half of the 90s, but better, because we think a broader footprint of the economy is benefiting from the digital world.

LIZ ANN: Couldn't agree more. And thank you for indulging me in trying to end on a more positive note. It's hard these days, but you did a great job. So Nancy, thank you so much for taking the time to join us. We've known each other a long time, and I think we think about markets and the economy in a similar way. So thank you for doing what you always do so well, which is sharing a tremendous amount of knowledge in a short amount of time and in a way that I think everybody can understand. So we really appreciate it.

NANCY: Thank you very much. Nice to see you. Ciao.

KATHY: Joining me now is my good friend and colleague, Collin Martin. Collin is a director and fixed income strategist here on my team at the Schwab Center for Financial Research. He holds the Chartered Financial Analyst® designation and provides analysis and education about fixed income for Schwab clients.

He's a frequent guest on Bloomberg TV and has been widely quoted in financial publications, including The Wall Street Journal, MarketWatch, and Reuters. And I expect you'll hear from him again on this podcast in the coming weeks and months.

Collin, thanks for taking the time today.

COLLIN MARTIN: Thanks for having me, Kathy. Happy to be here.

KATHY: So we've been talking in our fixed-income outlook throughout the past year or so about a theme of being up in credit quality. So can you describe what that means and how investment-grade corporate bonds fit into that outlook?

COLLIN: Well, when we talk about that up-in-quality theme, we're focusing on really those investments that have investment-grade credit ratings. And we're not looking to take too much risk right now, and we'll probably get into that, Kathy. But as we focus specifically on investment-grade corporate bonds, that fits into the theme because of the credit ratings that they have. So if you consider an investment-grade corporate bond, it's really just a bond issued by a corporation that has what's known as an investment-grade credit rating from the various credit rating agencies like Moody's, Standard & Poor's, or Fitch. And if you look at that specific investment-grade spectrum, it starts as high as AAA and goes down to BBB. And the higher the ratings, so AAA is very low credit risk, and as you get to BBB, it's more of a moderate to modest credit risk.

Now most of the market, Kathy, is in single A and BBB corporate bonds. So it is more on the lower end of the spectrum, but that's still quality in our view. Now there are risks, of course. You know, they're not backed by the full faith and credit of the U.S. government the way a U.S. Treasury would be. When you're considering the market or an individual corporate bond, it really depends on the actual issuer and their ability to repay their debts. But on the bright side, and again in that up-in-quality theme, these companies have investment-grade ratings for a reason. They tend to have relatively strong balance sheets. Their debt-to-earnings ratios tend to be somewhat low and manageable, meaning their leverage is low. They tend to have stable cash flows, and their businesses tend to be a little bit more defensive and not too cyclical. And that allows them to have those stable cash flows.

Now one reason we really like them right now, Kathy, especially given the high-interest-rate environment we're in, is that their borrowing needs tend to be diversified. So a lot of investment-grade issuers have a number of bonds outstanding. So if a bond's maturing in this high-interest-rate environment and they need to refinance that bond, it's likely that they'll be borrowing at a higher rate than the bond that's maturing. But it probably only represents a small portion of their borrowing needs. That's a good thing in this interest rate environment. So a higher borrowing cost today might not eat into their corporate profits as much as a company who's much more exposed to rising interest rates.

KATHY: Two things you said that are really important, I think, to emphasize. One is that the overall credit quality over the years has kind of migrated down a bit in investment grades. So we used to have, you know, at least a few AAA-rated companies. Now I think we're down to maybe one or two at the most. So we have more sort of settling in the lower end of the spectrum, but that spectrum is still high quality relative to a lot of other bonds out in the market.

And the other thing I like that you're pointing out is that diversified maturities—that gives a company, at least, the ability to manage their debt over time in a way that doesn't cause these big spikes that you might see in smaller companies without those sorts of options.

So we know the yields are pretty attractive, but tell me why you think they make sense for investors right now?

COLLIN: Well, you just said it right there, Kathy. The high yields they offer. So we like the quality aspect, but of course, as investors, we're focused on yield and income. And I think income's important. We went through this long period where yields were so low. And we knew a lot of investors out there had been really waiting and waiting for yields to rise to a level that a lot of people, you know, finally thought was attractive. And I think we're here now.

So specifically with investment-grade corporate bonds, you can get yields close to 6%. The average yield of the Bloomberg U.S. Corporate Bond Index—so it's a big index. It has bonds rated AAA to BBB. It covers the whole maturity spectrum. But if we can kind of simplify it into one number, you can get close to 6% yields. You'd need to go back to 2007, 2008 to get yields at those levels. So for those looking for income, especially if you hold funds in a tax-advantaged account, they can make a lot of sense because these are taxable. So yields are the number one factor.

But number two, and I think, Kathy, this is really important in the environment we're in right now, the investment-grade corporate-bond yield curve is positively sloped. And what I mean by that is long-term yields are higher than short-term yields. Now that's not the case for a few parts of the market right now. So the Treasury yield curve, for example, is inverted. That means short-term yields are higher than long-term yields. And that's a pain point for a lot of investors, right? Why would I, as an investor, accept a lower yield to go into, say, a 10-year Treasury note where I'm locking my funds up for a long period of time and I have more interest-rate risk, meaning my price might fluctuate more than if I was in a short-term investment—why would I accept that lower yield when I can get a higher yield with a short-term investment? That's really not the case with investment-grade corporate bonds, where the yield curve is slightly positively sloped. It's not like you're getting multiple percentage points higher as you go to intermediate and longer-term yields. But I think, most importantly, you don't have to accept a lower yield by going a little bit further out in terms of maturity.

KATHY: Yeah, we know that inverted yield curve is a pain point for a lot of investors. They really don't want to take on that added timeframe, that added duration risk, without getting paid for it. So it's nice to find something in the market that actually is kind of quote-unquote "normal."

So last question for you on this topic, just what are some of the risks? I mean, why not consider other types of corporate bonds like high-yield or bank loans or something like that?

COLLIN: Yeah, we see a lot of risks out there, Kathy, and the corporate bond market, generally speaking, is not created equally. There's highly rated corporates, and then there's corporates that have very low credit ratings and are more prone to default. And so if I stick specifically with defaults, we're seeing those rise. And when you hear about defaults picking up like they have been, that tends to happen in the high-yield part of the corporate bond market. Those are bonds that have credit ratings below investment grade, meaning BB or lower. And that default rate has been picking up, and it's expected to continue to pick up.

So given that outlook, we'd probably wait for a better entry point to consider going into that part of the market like junk bonds or high-yield bonds rather than going in now if we expect that default rate to continue to pick up. And we think defaults could pick up for a number of reasons because it really is a challenging economic environment right now.

We've seen corporate profit growth slow a little bit in an environment where these borrowing costs are rising. And that's making it really difficult for highly leveraged companies to service their debts. When you look historically at an inverted Treasury yield curve, over time that has usually been a problem for high-yield bonds, and performance has suffered.

And then finally, we're seeing a lot of banks tighten their lending standards. So if it's harder for issuers to refinance or access the markets, that's something that could make it more difficult for them to make those timely interest and principal payments.

So we do see risks out there, and just kind of bringing it full circle, Kathy, to our up-in-quality theme—because we can get high yields from an absolute sense without taking too much risk like investment-grade corporate bonds, why take more risk if you don't need to, especially because we know that a lot of investors out there have been waiting for such high yields?

So we think there's probably better opportunities down the road, and for now, we'd be focusing on that investment-grade corporate bond market.

KATHY: Well, great stuff, Collin. Good points about why pursue more risk if you don't need to at this stage of the game?

So, Collin, thanks for being here today. I'm sure you'll be back again soon on this podcast.

COLLIN: Thanks for having me and looking forward to coming back sometime.

LIZ ANN: All right, Kathy, so let's focus on where things seem to be headed for next week. What—and let's remind everybody next week, fortunately, we at least get a one-day reprieve with the markets closed on Thanksgiving. But for the four-day week, what's on your radar, Kathy?

KATHY: Well, there's still some economic data to go through, but I think for me, the highlight's probably going to be the minutes of the last FOMC meeting, the Fed Open Market Committee meeting. That's going to give us a little bit more insight into the conversation that was had, what the important points were made, how many people on the committee were on this side of the spectrum versus that side of the spectrum. Given how much focus there is on the Fed right now, for me, that's probably going to be the primary release.

But also, next week is my mother's 98th birthday, and so I am going to be out of town for a couple of days.

LIZ ANN: Oh my gosh, congratulations. That is unbelievable. Well, send a happy birthday from me too.

KATHY: Well, thank you. Yeah, she'll like that. She likes the attention.

LIZ ANN: I have a 93-year-old dad, but my mom's still around, so I'm not suggesting we introduce the two of them.

So, on my radar next week, aside from tryptophan on Thursday, would of course also be the FOMC meeting, I think it's especially these days, they always have nuggets of information. But also Leading Economic Index—see whether we're ever going to finally start to see some stabilization. We've got some regional Fed data out. Those sometimes have interesting nuggets. We've got the University of Michigan sentiment, and that comes along with the expectations, current conditions, inflation expectations. Interestingly, that can sometimes, at least, garner some headlines. And then S&P Global's version of the PMIs, manufacturing and services. It's maybe not as widely followed as the ISM version of them, but sometimes they can, if there's a big move, they can provide a bit of a tell. So that's what's on my radar for the shortened week.

KATHY: Thanks for listening. Be sure to follow us for free in your favorite podcast app. And if you've enjoyed this episode, please tell a friend about the show.

If you want to keep up with the charts and data we post in real time, you can follow us both on Twitter (or X) or LinkedIn.

LIZ ANN: So I'm @LizAnnSonders—that's S-O-N-D-E-R-S—on X, formerly known as Twitter, and LinkedIn.

KATHY: And I'm @KathyJones—that's Kathy with a K—on Twitter and LinkedIn.

We're taking next week off for Thanksgiving, but on our next episode, I'll be speaking with Jens Nordvig, founder and CEO of Exante Data.

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

[1] Senior Loan Officer Opinion Survey