Executive summary of Schwab’s chief investment strategist on policy instability, retail-driven rallies, and why the Fed staying on hold is bullish.
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Liz Ann Sonders joined the Forward Guidance podcast to dissect the forces shaping global markets. Below are the distilled insights most relevant to Australian investors and traders.
- Policy instability, not mere uncertainty, is freezing corporate capex. Tariff announcements flip from 15 % to a potential 35 % effective rate; companies cannot plan, so they “put themselves in a timeout”.
- Retail fingerprints are all over the April-to-July rally. Since the 9 April intraday low, the best performers have been non-profitable tech, heavily-shorted names and “meme” favourites—not the Magnificent 7.
- Sentiment has cycled from despair to complacency. NDR’s crowd-sentiment poll is back near neutral-to-optimistic; direction of travel matters more than level.
- Debt trajectory is now a growth headwind. The latest US fiscal package adds ~US$2.8–3.4 trn to the 10-year deficit. Servicing cost already exceeds US defence spending—historically a red flag for empires.
- Inflation regime is shifting secularly higher. Globalisation, cheap energy and unfettered trade—forces that crushed inflation for 25 years—have stalled or reversed. Expect a 1960s–1990s style backdrop rather than the Great Moderation.
- Goods vs services split in CPI is widening. Tariff-affected core goods are re-accelerating; shelter disinflation is fading. Non-discretionary inflation is running at twice discretionary, reinforcing a K-shaped consumer.
- Fed on hold is market-positive. Sonders argues the rally persists because the Fed is not cutting; premature easing risks a repeat of last autumn when 100 bp of Fed cuts sent 10-year yields up 100 bp.
- Concentration risk in cap-weighted indices is extreme. Only three of the Mag 7 are up >20 % YTD; the top 10 performers in the S&P 500 and Nasdaq 100 contain none of them. Diversification and quality tilt remain prudent.
- Labour market is low-hire, low-fire. Watch continuing claims (cycle high), private payroll softness and hours worked for early signs of a layoff cycle.
- Immigration curbs are a stealth drag on growth. Fewer workers = lower labour-force growth and productivity; construction, agriculture and hospitality already feel the pinch.
- AI is real but needs valuation resets. Infrastructure (utilities, industrials) now outperforming core AI megacaps; next phase is widespread adoption stories rather than pure picks-and-shovels.
- Actionable portfolio tactics:
- Replace calendar rebalancing with portfolio- or volatility-based rebalancing—trim winners, add laggards without trying to time tweets.
- Fade low-quality momentum; lean into balance-sheet strength and free-cash-flow yield.
- Ignore year-end price targets—they are “a dumb exercise” for individual investors.
Positioning takeaway: stay invested but upgrade quality, resist FOMO into speculative tech, and use any further volatility to rebalance toward global industrials, utilities and high-grade credit while the policy fog persists.