Stocks Take Hit as Bond Selloff Saps Risk Appetite

Summary

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, discusses how the market has shifted from the Great Moderation to a 'temperamental era' in which rising bond yields pressure equities. She argues traditional 60/40 diversification is less effective and favors diversification into areas such as corporate debt. She also questions the sustainability of the current earnings surge and downplays the idea that record money market assets are powerful fuel for stocks.

• Sonders sees a return to a temperamental era where higher bond yields push stock prices lower.
• Rate direction and speed are currently a headwind for equities, while yield curve shape remains supportive.
• Bond and stock prices moving together reduces simple 60/40 diversification; corporate debt and other areas are seen as alternatives.
• Second-quarter earnings growth jumped from 24% expected to over 50%, but Sonders doubts long-term sustainability.
• AI-related depreciation catch-up is a key reason to question earnings persistence.
• Money market fund assets are only 10-12% of stock market cap versus 60% in 2009, limiting cash firepower.
• The host notes futures declines, a VIX below 16, and elevated Treasury yields, while relaying a view that France is fragile.