Core PCE, GDP, Other Inflation Data Set to Move Equities & Bonds This Week

over the last year, as you can see on this 12 month chart. Welcome back to Morning Trade Live. It's time now for the big picture. So let's welcom in the team from Charles Schwab Center for Financial Research. Liz Ann Sonders chief investment strategist. And Kevin Gordon, headcro research and strategy. Thank you so much to both of you for your timeope you had a great weekend, Liz, and kicking things off with you. Very busy week. Very consequential as far as this top tier economic data off the back. It was a q week in some respects last week. End of the Q three as well. I'm just wondering what investors should be p attention to. Well obviously the PCE report is going to be important, but it's always imporo remind inflation watchers that PCE doesn't tend to print well outside the band of consensus expectations. Because once you have the PPI and the CPI, you can essentially map the components over to PCE. But then of course, labor market data as well. I think the key releases that cam last week were actually the PMI, S&P Global's version of the PMI. that showed heat, not just in terms of the e, but also thes component too. So we have not put this inflation genie back in the bottle by any means. Oh f sure. And so obviouslyevin with a lot on the docket this week. I'm just wng exactly metrics, which data points beneath the surface you're going to be paying attention to t most.h. I mean, I think listen makes a good point with the PMIs. Because if you looot just S&P, but what was the consistent theme across some of the regional PMI data that we got? There was some weakness in some areas related tod and new orders. But if you look at the input price components and prices paid, that that consistently across the board has been has been the sticking point. And that's been the issue. So reinforced by S&P global reinforce probably, I would assume by what ism has t say this week. And then I would also add, you know, into the inflation discussion. You now, I think, introduceust because of some of the trends we've been seeing ander labor data, particularly joble claims, I think you introduce some discussion around what could be, you know, wage related inflation pressure that's picking up. And even if you look at the dntial between the wage growth tracker from the Atlanta Fed and wha has been still a decelerating trend for average hourly earnings in nonfarm payroll statistics that we get, the latter has been biased more by composition effects. In of who's hiring more. It's more of the lower paying industries. So if you actually adjust for that, we have seen a bit of a turn in wage growth, and I think that that's going to be a little bit more of a, you know, part of the discussion, at least a key part of the discussion. If that continues as we head into the end of the year and hiring picks up, if that's confirmed by the jobs report t get on Friday, okay, we'll be watching. And as it relates to the market, listmean, how would you suspect we react this week off the back of all of this? I mean, particularly because we are looking at that closecorrelation year in oil right now. And then that inverse relationship with stocks Yeah. No, I think that the inflation data will be key. It certainly has the potential to change the expectation around what the fed is going to do. At the October meeting, we were leaning in the in the camp that wet probably two more hikes this year, but it will be the combination of the labor market and the inflation data. I think, it relates to the inverse correlation b bond yieldsnd stock prices. It's been our view, Sam, as you know, that we think that we're in the midst of a secular shift to an environment that looks maybe a bit more like the period from the late 60s to the late0s, when you had more inflation volatility. You had that inverse relationship between bond yields and stock prices, which of course means you had aive relationship between bond prices and stock prices. That's s different from the great moderation era from the late 90s up until 2020 twos inflation spike, you had bond yields stock prices moving in the same direction, which means prices moved i opposite direction. That gave rise tossic asset allocation structures like 60, k that's one of the longer term about is how do we getto thin diversification in a slightly more sophisticated manner, not just in that traditional stocks bonds mix. What we're likely to get this week. And I know that people are paying a lot of attention, as you, on the labor market, we're looking at wages as well. As my previous guest said, you know, I mean, if you have a job, you're more inclined to go out and spend oney that's supportive for earnings as well for, you know, obviously corporates too. What does it all mea for the that the data we get this week re moves the needle as far as that next decision. I think it potentially could. I mean a lot of it still rests on inflation. And wheth see an improvement back to to trend for, you know, getting close to 2%. But at same time, if you take all of the all the commentary from fed members recently, it's not suggestive that they're, you know, viewing this as one and done or maybe even a couple and done. But yeah, I mean, it will, it will of course hinge on, on what the trends looke. And I do think that with labor, you know, recovering as much as it has now that we're seven months into this energy shock, I think much fear as there has been a about a slowdown in the economy from from this eneock. And we've gone through two of them nows year, two waves of, you know, gasoline prices rising and oil prices rising. But the thrth average for payroll gains when t energy shock started back in February was -4000. It's now moved up to 71,000. That's not remarkable relative to history. But I think when you considereverythin at the economy and the fact that the labor market has showno need to start thinking about how that is going to increa play a role, maybe more, as we turn the year. If those trends hold together, I think we need to be more sort of attuned to how that could be playing a bigger role in thefedy just on the inflation front. Yeah. And listen, just finishing things off with as obviously we wrap up this quarter, we're back to conversations in this market aroundreadth and also concentration risk. How are you thinking about that going into year's? Yeah. So the breadth has not been great. You've certainly seen a giv and equal weight relative tops cap weight. Over the trailing one month per You have less than 2 S&P stocks that are beating the index itself over that period. So lots of ways you can slice and dice breadth, but we have seen bit of a deterioration. That said, even amid that, you still have a significant amount of rotation. I continue to think that rotati is is the new momentum trade. And I don't think we get ouhat rotational churning kind of market anytime soon. Thank you to both of you for joining me today. I really appreciate youe and a great set up for the week ahead.