Episode summary
The Bear Market No One Sees | Liz Ann Sonders on the Violent Rotation Investors Miss
Excess Returns
· · Hosts: Matt Zeigler, Jack Forehand, Justin Carbonneau, Dave Nadig, Brent Kochuba, Eric Pachman, Andy Constan, Cameron Dawson, Bogumil Baranowski, Kai Wu, Kevin Muir, Aahan Menon, Ben Hunt, Jim Paulsen, Jason Buck · Guests: Liz Ann Sonders
Summary
Liz Ann Sonders argues that the market’s surface-level resilience is misleading because the real story is rotation, not broad strength. She says the latest war shock, oil spike, and policy uncertainty are feeding into inflation expectations, the Fed’s reaction function, and longer-term growth risk, even if indexes still look resilient. Her main takeaway for investors is to stay disciplined, avoid trading around every headline, and focus on strategic asset allocation rather than short-term noise.
She emphasizes that the U.S. is not immune to oil shocks just because it is a net energy exporter, since oil is globally priced and higher prices still flow through to inflation and spending. Sonders also says the market has been unusually driven by retail traders and other short-attention-span money, which has helped make drawdowns look smaller at the index level even as many individual stocks have been in deep bear-market territory.
On the economy, she sees a K-shaped backdrop, with lower-income consumers most exposed to food, energy, and insurance costs. She also thinks AI is still in a transformative phase, but right now it is disrupting jobs and hiring more than fully replacing occupations. For investors, she sees earnings season, the bond market, and credit spreads as especially important signals.
Key takeaways
- Sonders says the U.S. is still exposed to oil shocks because oil is globally priced and the country is not a net crude oil exporter.
- She argues the market’s decline has been hidden by rotation, with the S&P 500 masking much deeper stock-level drawdowns.
- Sonders says retail traders are no longer “dumb money” and now shape short-term market behavior more than many institutions.
- She thinks AI is mainly replacing tasks for now, but it is already restraining hiring, especially for younger workers.
- She sees the bond market as the key driver to watch for equities, Fed policy, and credit stress.
- Sonders expects earnings season to bring more downward estimate changes tied to the war and its ripple effects.
Notable quotes
“Gone are the days where you could call that cohort or the broader retail investor crowd the dumb money”
How the episode opens
We're a net energy exporter. Um we're not a net crude oil exporter. We're actually a net crude oil importer.
But even if we were a net crude oil exporter, we're still at the mercy of prices. Gone are the days where you could call that cohort or the broader retail investor crowd the dumb money. They have not been the dumb money.
And it's part of the reason why you don't really hear those labels applied anymore. If you're at the sort of top of the inflection point when the data has been getting better and better and it's strong and then you start to descend, the market tends to sniff out that inflection point. But at the apex, the data actually still looks pretty darn good.
You're watching Excess Returns, the channel that makes complex investing ideas simple enough to actually use, where better questions lead to better decisions. I'm Matt Ziggler. Jack Forehand is my co-host today.
Our guest, chief investment strategist at Schwab Center for Financial Research, the one, the only Lizan Saunders. Welcome back, Dexus Returns.
Oh, thanks, Matt. Thanks, Jack. Great to see you guys. — All right, straight into the deep end. when confronted with unstable situations and I would say for some very stable people in administrations and other things not a metac comment there at all but in unstable situations like we've seen ourselves with the war the oil shock how do you put this into context for investors you're the pro
So I mean this is particularly difficult because it's not just the nature of the variety of of conflicts geopolitical crises trade wars that we have been in but it's uh at times the mccur ial nature of how decisions are made and how they're announced and how quickly narratives can change.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- oil shock
- war and markets
- inflation and fed policy
- hidden bear market
- ai and jobs
Companies and tickers mentioned
- Schwab
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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