Understanding Corporate Bond Analysis (With Winnie Cisar)

KATHY JONES: I'm Kathy Jones.

LIZ ANN SONDERS: And I'm Liz Ann Sonders. 

KATHY: And this is On Investing, an original podcast from Charles Schwab. Each week we analyze what's happening in the markets and discuss how it might affect your investments.

LIZ ANN: Hi, Kathy. I know you've been traveling a fair amount this year, as have I, and you've met with so many of our fixed income clients recently. So one question we like to ask each other is, what kinds of questions are you getting from investors lately? What's top of mind? 

KATHY: I would say the number one question continues to be, you know, "If I'm going to move out of very short-term bonds or money market fund that's paying me 5%, why would I do that if the yields are lower for longer-term bonds?" And it gets to be a less of a conversation of "Why would I do it?" because I think people understand there's reinvestment risk if and when the Fed begins to cut rates, but it's also a question "Well, how about timing it? How do I do it? If I'm willing to consider it, you know, how should I do that? How should I go about doing that?" And that's where we get into conversations about using different strategies like barbells and ladders and dollar-cost averaging and all that. I would say that's probably number one.

And then the other questions are generally around inflation and the inevitable question about the high level of U.S. government debt and what that means longer term. So and I know you hear that one all the time, as well, Liz Ann.

LIZ ANN: Every single time. In fact, it's been years, and I just sort of have the mental tally. It's been years and years where I have walked away from a client event, be it a virtual one or a live one, where that question has not come up. And what's interesting, though, and I don't know whether you're hearing that, there's maybe a little bit more specificity in the question these days, either just their knowledge of the numbers on the deficit side or the debt size, or they might have as a percentage of GDP.

It's just less of a broad, but you know, are we ever going to hit some proverbial wall? And a lot about do either side, you know, from a politics perspective, care about it? So a little bit more specificity, but I also have been getting more election-related questions, and some of them are sort of honest questions.

Other of them are more of a, "I'm on my soapbox" and it's, it's often "Won't the market, you know, implode if, you know, fill in the blank?" depending on what side. There are questions around, are there any trends that matter in terms of one party versus another? And as we always say, it's ultimately about policy proposals when we get to that point.

And of course, just what the majorities are in Congress, one side or the other, as to the possibility of some of these policy proposals actually being put forth, and that's, of course, what our colleague Mike Townsend does so well, and we'll bring him into the mix. Lately, though, a lot of Magnificent Seven questions.

"Will they continue to lead?" But a lot of questions around that. That I don't want to suggest people asking it, don't understand what the grouping is, but often you have to sort of dive in and ask for a little bit more detail because the, you know, original moniker was specific to the seven largest stocks in the S&P 500®.

Yet, particularly last year, a lot of investors started to think that they were the seven best performers. They were not the seven best performers. They were seven very strong performers, but they were, and I emphasize, were the seven largest stocks. Now those same seven stocks are not ranked one through seven.

You know, Tesla dropped recently to the 10th position, now number nine. So you've had a couple of stocks, Berkshire Hathaway and Lilly, sort of leapfrog, but they also have an incredibly wide range of performance this year, with NVIDIA and Meta being at the number one and two spot. And this is as we're recording this, not the day it airs, but then Tesla down in the 499th spot, so much more dispersion.

And that conversation tends to morph into lots of follow-on questions. So I'd say that's the more recent theme of what I am hearing. 

KATHY: Yeah, I even get questions about NVIDIA, which I admit I know nothing about, and I defer to you and Kevin Gordon on your team. But it is, it has captured everyone's imagination, this handful of stocks, and it spreads far and wide when it comes to big questions we're being asked.

LIZ ANN: Yeah, neither of us will obviously … you're the fixed income guru. You don't cover individual stocks, but I don't cover individual stocks either. So I often try to put it in the context of sort of a bigger picture. One of the themes we've been discussing recently is that last year was really all about what I would call the sort of creators or providers of artificial intelligence, AI.

Now, I think it's at least as much about how companies and industries across the spectrum are bringing AI into the mix and how they're adopting it for their own companies, for their industries, for productivity reasons, for growth reasons. So I think that's more of the 2024 theme around AI. 

KATHY: I would agree that I think people have lost a little bit of the reason why this has captured the imagination of the market. It's about boosting productivity, right? And if it does live up to the expectations, it has meaningful impact on industries and on the overall economy. So to me, that's what's interesting. 

LIZ ANN: Are you suggesting equity investors can lose the narrative? 

KATHY: Maybe just occasionally, every once in a while. 

LIZ ANN: So the last couple of episodes, we looked at real estate. First, the residential side of things and then the commercial real estate side of things. But now we're back in your world, in the fixed income world, today. So Kathy, tell us a bit about our guest this week. 

KATHY: Yeah, our guest this week is Winnie Cisar. She's the global head of strategy at CreditSights, where she's one of the leading voices in corporate credit strategy.

She leads a group of analysts that evaluate the creditworthiness of corporations and provide strategic outlook, largely for institutional clients. We use CreditSights as a resource on our team. Prior to that, at CreditSights, Winnie was a managing director and the head of credit strategy for Wells Fargo, leading a research team that focused on corporate investment-grade and leveraged finance.

She also at Wells Fargo developed the Leveraged Finance Strategy product and rolled out coverage on high-yield leveraged loans, the distressed market. So she has just a great history and range of experience in the area. She's a frequent guest on CNBC, Bloomberg, NPR, and Yahoo Finance, and really one of the voices that is worth listening to in this area.

Today we get to dive into the fascinating world of corporate bonds, and more specifically credit ratings—how those ratings are formed, what they mean, and how investors can potentially use them. 

Winnie, thank you so much for being here today.

WINNIE CISAR: Thank you for having me, Kathy.

KATHY: In addition to our guest, Winnie Cisar, from CreditSights, we have my colleague Collin Martin, who is our resident expert on corporate bonds. So I'm going to start really quickly with Collin.

And what I'd like you to do is just say, what are credit ratings, and what are corporate bonds? Let's start there. What are corporate bonds, and what are credit ratings?

COLLIN: I think that's a great way to start, Kathy. Corporate bonds are a type of bond that are issued by corporations. There can be any number of reasons why a corporation might want to issue debt. It might be to build a new plant or warehouse. Maybe they're looking to buy a company. Maybe they're looking to refinance debt. But when we as investors buy or invest in corporate bonds, we're just buying a bond from a corporation or lending to a corporation. 

There's a few things we look at when we're looking at the corporate bond market. The first is credit ratings, as you just alluded to, Kathy. A credit rating is really an opinion of the issuer's credit worthiness. I think a good way to think about it is like a credit score for consumers, like us. If we're looking to get a loan, we have a credit score. Credit ratings are a way to rate the company's credit worthiness and basically an idea of how well do we think they'll be able to repay that debt and make timely interest payments. And the credit-rating scale starts as high as AAA, and then it goes down to AA and single A all the way down to, say, CCC or even single C. And all else equal, the higher the credit rating, the stronger the issuer. And that kind of ties into the next part that you alluded to, Kathy, is a credit spread. Because when you lend to a corporation, you basically earn extra yield relative to a comparable Treasury. If you invest in a Treasury, for example, it's backed by the full faith and credit of the U.S. government. If you invest or lend to a company, you're relying on that company to stay in business and make sure they can make those timely interest and principal payments. So you earn extra yield—again, we call that spread—to compensate you for those risks. 

Basically, if you have a higher credit rating, investors will probably earn a lower spread because it's a stronger company, and vice versa. And then finally, Kathy, that kind of leads to an important distinction for investors that there's an investment-grade spectrum and a high-yield spectrum. So if you're an investment-grade-rated issuer, that's credit ratings of AAA through BBB. And then once you get to BB and below, that's considered high yield. It's also called junk or sub-investment-grade. We kind of look at them a little bit differently. If you look at the investment-grade market, it's relatively low to moderate credit risk. And then when you go to those junk ratings, they come with a lot more risk. They're more likely to default. So you earn higher spreads and higher yields, but they do come with a lot of volatility. That's important for investors as to what that difference is between investment grade and high yield.

KATHY: Great. So let's go to our guest of honor here, Winnie. And now that we sort of laid the foundation and described what corporate bonds are and what ratings are, I'm going to ask you just a very simple question. What does a credit analyst do? What are the metrics you look at? What's most important to you when you're assigning these ratings to the various companies?

WINNIE CISAR: So it's a simple question on the surface, but actually one that has a lot of nuance in it. And I would just say at CreditSights, we are owned by a broader ratings company, which is Fitch. So we have colleagues in our broader team who do rate these corporate bonds, and generally they're looking at the fundamental health of a company. Is a company in a sector expected to continue to perform well over a long period of time? Or is this an emerging technology or perhaps a technology that is on the way out the door? 

You know, for example, we used to have phone books, and there were companies that printed phone books, and for a long time those were higher-quality companies, and now we don't have phone books. And so understanding where we are in these business cycles and the fundamental implications of those cycles is at the core for any credit- rating analyst. On the CreditSights side, we have credit analysts who are not as focused on ratings but are actually focused on understanding whether the market is really appropriately valuing the company's cash flows, the company's fundamental outlook, in the credit spread. So trying to actually identify dislocations between maybe the company is rated BBB, but it might be downgraded in the next 24 or 36 months, and the market is not appropriately pricing that in. So try to capitalize on those opportunities or identify those potential risks where you do see a dislocation between the rating and what the market is currently assigning as the credit spread. 

And there's a wide range of metrics that credit analysts both on our CreditSights side and then on the ratings side use. It can be as simple as leverage. So how much debt do you have relative to your earnings? It can be something like interest coverage. So how much are you earning relative to how much you have to repay on your debt? And then there are a number of metrics that are more specific to different sectors: energy versus financials versus healthcare. They're all going to have a little bit different analysis and different nuance in terms of what the fundamental picture really looks like.

KATHY: Yeah, that's a great reminder. I am old enough to remember phone books, but I'm guessing there might be some listeners out there who don't remember that if you wanted to find someone, you actually had to look up their phone number in this big, thick book and then dial them up on the landline. So yeah, that used to be a pretty steady business. Everybody had to have phone books, and now, no more. But you did bring up something that I find really interesting in this market. It seems that corporate bonds are doing well despite the high borrowing costs and the fact that I think defaults have picked up a bit. Why do you think that is?

WINNIE: Well, there are a number of factors really supporting corporate bonds. And the first is that corporate bond yields are higher than they have been in over a decade. After the great financial crisis, we had a period of very accommodative monetary policy from the Fed, which kept bond yields low across the board, both in Treasuries and the corporate markets.

And now we have the Fed in a much different, more restrictive policy position, which means that Treasury yields are much higher, which means that if you are in a corporate bond that also has an additional spread on top of the Treasury yields, the all-in yield that investors can reasonably expect to obtain in the corporate bond market is higher than it's been for a long period of time. And this is not just for those junk or high-yield companies. This is also true of the investment-grade universe. 

So when we balance the risk of buying a corporate bond and the return of this elevated yield, it's much more compelling than it has been for a long period of time. Investors are also expecting that perhaps yields have topped out where they are currently and that, over the course of the year, we might see Fed policy easing, which could result in lower yields, which would kind of help both the fundamental picture, as companies would then presumably be able to refinance some of their existing debt at levels a little bit more attractive than what we were seeing in 2022 and 2023, where borrowing costs really increased. And also, the expectation that as the Fed starts to lower rates, this might be my last hurrah to buy a AA-, single-A-rated bond with a 5% or higher yield. And so we've seen a massive shift in the demand dynamics with investors really taking a close look at fixed income again, especially the corporate market, and thinking it looks like a much better opportunity than perhaps in 2021, where yields were 3 to 4% for high-yield companies.

KATHY: It is one of those areas that we've been talking a lot about as an area of opportunity. And Collin, I think the one concern you've had is that spreads are still pretty low. What is this telling us about the market right now? I don't know, Collin, if you want to expand on that, but I know that this has been a concern we've highlighted.

COLLIN: Yes, spreads are low, and I think if I can tie it back to how you framed it before, we are seeing defaults pick up. Now that's not indicative of the whole market, of course. It's kind of a subset of the high-yield market that tends to see defaults pick up. But we were admittedly concerned over the past year and a half or so based on a number of factors that we were looking at, a number of historical relationships that I think tie into both the economy and the corporate market where a lot of what we and, I think, a lot of others expected with the economy in such an aggressive pace of rate hikes just didn't slow things down or result in the carnage, I guess, for lack of a better term, that might have happened. One thing that we were concerned with was the inverted yield curve. We looked at how have corporate bonds, specifically junk-rated bonds, done when the yield curve was inverted. Historically, they did relatively poorly. But again, they've outperformed over the past year or so, and actually now we expect the yield curve to un-invert later this year. 

We also saw bank lending standards tighten significantly. We thought that would have pulled spreads higher. That hasn't really happened aside from a little blip earlier last year. And then also we look at growth expectations. We look at the ISM Manufacturing Index, and that tends to trend with high-yield spreads, and when the ISM Manufacturing Index is declining, like it has for a while, it's been below 50 for about 15 months now. When it's below 50, that's in contractionary territory. But yet here we are with spreads really low. And I think it shows how different it's been this time. But I also think it has to do with the fact that a lot of companies had really taken advantage of those low borrowing costs that Winnie alluded to in 2020 and 2021. You saw companies able to issue debt with longer maturities at really, really low yields. I mean, as she mentioned, high-yield bonds, 4%. I mean, that's something that I never thought I'd see, and then we saw it. So I think that led to the strength that we've seen. Now, one thing that I'm trying to figure out now, and Winnie, I want to go back to you on this, is spreads are low, but they're low for a reason, right? The economy's been really resilient, but it becomes almost a catch-22, where do I want to lend to these companies without earning much because the economy is good now. But what happens down the road? What happens in a year or two if things slow down? Are these spread levels right now high enough to compensate us as investors?

WINNIE: And that is the multi-trillion-dollar question, or however many dollars your investors are thinking about putting to work in the corporate bond markets. And it's a conversation we have every day with our clients. "Should I be buying T-bills, which earn me 5% or more? Or should I be buying corporate bonds, which are also earning me 5%?" I would say that this cycle has been different in a few key ways that leave us still pretty comfortable with corporate bonds. First is how much of a benefit corporate America received in that period of ultra-low borrowing costs combined with better-than-expected earnings. 

I think that this is part of the conversation that sometimes gets overlooked, is where we had these companies performing much better than anyone would have anticipated, given the magnitude of some of the economic shutdowns and just changes that we saw in the broader economy. And for that reason, we've been more constructive on balance sheets. At the same time, a lot of management teams for these companies have seen borrowing costs rise over the past two years, have seen the uncertainty in the economy with the inverted yield curve and a number of the stats that you just mentioned on the economic data front, and they've been very cautious with their balance sheets. They haven't been willing to take on extra debt to do things like mega-M&A that's going to be very re-leveraging or to pay back dividends to their equity shareholders or do stock buybacks. And so instead of a typical cycle where you see companies trying to consolidate, try to figure out how can we kind of stretch our debt capital for a future return on investment, you've seen balance sheets in very good shape, really kind of across the corporate market. And so when we think about the fundamental health of corporate America, even in an economic deceleration, we feel a little bit more comfortable with the spread environment, especially for higher-quality borrowers. When you talk about CCCs and where defaults have become more acute, then that's a little bit different of a conversation, and you have to be more specific with the types of companies that you're buying, but for the most part, the cycle has been very different from a credit-quality perspective.

COLLIN: There's one thing that I kind of want to jump in on here. I think you made a really good point, Winnie. When we look at, let's focus on investment grade real quickly because that's really what we focus on more with our clients at Schwab just because it is more higher rated, higher quality. We kind of have a short-term and a long-term view. In the short run, yes, spreads are low. There's a risk that they move higher, and maybe over a 12-month timeframe, maybe the return underperforms Treasuries. But if you're a long-term investor, and you mentioned this before, 5%+ yields we still think are really attractive. And then I want to key on one more point you made when you compared short-term Treasury bill yields at 5% or more and then corporate bond yields at 5% or more. Something that we find with a lot of our clients is the concern with the inverted yield curve and why would I want to move further out in the yield curve when I can get a higher yield with a short-term investment. And we get that. It doesn't make too much sense. But with corporate bonds, you don't really have that problem. And if you are looking for 5% or more with highly rated, high-quality investments and locking in that yield with certainty for a longer period of time, because if you're in short-term investments, you're facing reinvestment risk once those Fed rate cuts come. So that kind of ties in with, if you are looking for higher yields, you can move further out in the curve and not really sacrifice yield too much.

KATHY: Yeah, that 5% has kind of been a magic level, I think, for investors. And I mean that sort of facetiously, but when 5% comes up, you can see demand is strong. No matter what the security is being offered, you see 5%, the demand really, really picks up. It's a good point that corporate curve is not inverted like the Treasury curve. But all that being said, all the great things about the corporate bond market right now, are there sectors, Winnie, that you think are more attractive than others? Are there some that worry you, like commercial real estate? What are the areas that look great? What are the areas that maybe make you look a little closer?

WINNIE: Yeah, absolutely. So I would say that the sectors that are most worrisome right now are some of the sectors that issued the most bonds in the post-great-financial-crisis era. You saw a big surge in healthcare-related issuance for both investment in facilities and also some big M&A, especially in the pharmaceuticals subsector. Also, telecom and media, very big issuers historically already starting to see a pickup in defaults and some idiosyncratic stress. One of the first things that we always look at is which sectors were busiest in the capital markets in a five- or 10-year period, and how can we assess whether that issuance was actually for the right reasons or was it a little bit misguided?

Then, on sectors that we think are more attractive, we've still been pretty constructive on consumer-related sectors. Some of this is a little bit counterintuitive because we are expecting that the consumer is going to slow down, but it's slowing down from a very elevated level of spending. And we feel still pretty good about some of the discretionary complexes, things like lodging and leisure, the cruise lines. And at the same time, a lot of those companies are focused on ratings momentum and making their way back up to investment grade. A lot of those companies were downgraded to high yield at the height of the pandemic in 2020. And now we've seen kind of that slow march towards improving fundamental quality and getting back to an investment-grade rating. We've also been pretty constructive on some of the sectors that faced the biggest problems in the 2016 period, like energy, where you saw a pretty significant default cycle. A lot of the companies in the energy complex learned some very valuable lessons in that default cycle and have thus focused more on the balance-sheet management side of things. Similarly, home building, which was one of the biggest impacted sectors in the great financial crisis. Now we have a home-building corporate credit market that is much more contained in terms of how they manage their balance sheets and their risk. And so there's a little bit more opportunity for stability of cash flows in those types of issuers.

KATHY: So there's one aspect of credit that I find fascinating in this cycle as well. This may not just be a cyclical change but more of a secular change, but it's the rise of private credit as a supplier to these issuing companies. What do you think the role of, or the expanded role of, private credit is in this market? And is that affecting the public market?

WINNIE: Private credit is absolutely affecting the public market. I would say for the past two years, private credit has been a really crucial source of liquidity for some of these lower-rated, high-yield or junk companies that needed to refinance existing maturities or had M&A deals that they had started before markets got really volatile, and they needed financing. And so private credit stepped in, saying, "Hey, we have capital that we're willing to lend. It's going to cost you. It's going to be at 12%, 13%, 14% yields. And we're going to be very focused on covenants," or kind of the requirements that investors have for lending to a company, things like keeping leverage targets at very moderate levels, or how companies can use cashflow proceeds. 

Now, since we've started to see the public markets come back to life in the beginning of 2024, now we're seeing this competition across private credit and public markets, and so some of the discipline you saw in the private credit underwriting in terms of the credit quality and the types of covenants that those private-credit lenders were requiring are starting to loosen up a bit. And this is much more consistent with that mid-cycle behavior where there's more of a competition for deals across different markets. And so this is the point where we would say, "OK, now the private-credit dynamic might be shifting from a really helpful source of liquidity to something that is actually pushing deals that are maybe not the best return on capital or have the best risk-reward profile.

KATHY: Yeah, this is something Collin and I have talked about a lot lately and how to really figure out the impact on the public market. Collin, did you have thoughts on that?

COLLIN: Just a minor thought, I thought Winnie did a great job there, really great points. My only thought is that it's a worry for me if investors think that it's something that it's not, because at the end of the day, it's still leveraged lending. It's lending to low-rated junk companies. And that comes with risks, just like it does in the private market. Just because you don't see it happening, because maybe the issuer doesn't mark to market, doesn't mean it's not. Now, holding for long time periods helps smooth that out, of course. But I just want to highlight that there are risks, of course, just like there's risks in lending to any risky company. So it's not this magical investment that has come to market and can guarantee returns or anything like that. There are risks just like investing in high-yield and leveraged loans.

WINNIE: Yeah, Collin, that's a great point. And actually, one of the things that has been so strange about this credit cycle is liquidity in portfolios has not been your friend. The biggest write-downs that we've seen are, you know, Treasuries have had massive mark-to-market losses and rising yields, so have investment-grade public bonds. But the private-credit markets, like Collin just mentioned, you don't have that mark-to-market dynamic, but that's not going to be forever, right? There's going to be a shift in the market sentiment, and liquidity will again be helpful for portfolios. And so this is where credit investing is really important. Knowing what you're owning, whether you have an investment-grade bond or a private-credit holding, is the number one discipline that we talk to our clients about. And that can be at the issuer level, at the sector level, at the rating level, across the curve, what are the covenants? All of those things are really important.

KATHY: Yeah, I think the phrase that I continue to hear is "extend and pretend," you know, extend a loan and pretend that the valuation hasn't changed. That's always a bit concerning, but it has been one of those trends in the market recently that has really kind of captured, I think, much of the market in a way that was somewhat unexpected. So we'll have to see how that plays out over time.

So by the way, "mark to market" is a term we use, and it really just involves adjusting the value of an asset to the current market condition. So what would that asset be worth in today's market? And in the bond market, when something isn't on an exchange or actively traded, sometimes its value isn't as easy to see.

So when we're talking about private credit, they don't have to mark it to a public valuation. And so sometimes it's hard to know what the value of those underlying assets might be. 

Winnie, we recently interviewed someone from one of the credit-rating agencies about municipal bonds, but oftentimes we find sometimes investors are comfortable with municipal bonds, but they really are not as comfortable with corporate bonds. Do you think that's because the ratings are different? Do they equate? Are they different? How do you view municipal bond ratings versus corporate bond ratings?

WINNIE: Kathy, this is a great question. I think for corporate bond ratings, there are sometimes more questions around the cash flows of a corporate issuer versus a municipal issuer. For a municipal issuer, there are revenues based on taxation or facility usage, those types of things. For corporate bond issuers, the cash flows are based on "What is this company doing? Are they making money? Are they losing money? Is this a company that you feel good about being around in 30 years?" 

I think most investors expect municipalities to be around in 30 years, whereas there are some companies that don't make it that long. And so understanding the sources of cashflow, the outlook for a specific company, requires a different level of analysis and understanding. And also, not all companies are created equal. We have a lot of different types of companies, a lot of different sectors, a lot of different business models, different management teams who focus on different types of initiatives. So the analysis can feel more cumbersome or a little bit more confusing than perhaps a municipality that is going to pay back its debt because of a tax that they've levied on, you know, water sewage usage and things like that.

KATHY: Yeah, that's a great point. State and local governments generally are ongoing entities. There have been a few exceptions, but in general, they continue. Not so much with companies. They come and they go.

So Winnie, there's one more question I have for you, and it's something I tend to ask all of our guests. What do you read, listen to, pay attention to in the markets? We have a lot of really smart listeners who will ask, well, how can I learn more about this topic? So give us your playlist, your reading list. What is it that captures your attention?

WINNIE: Well, Kathy, I love this question. I will first give you a compliment. I've been listening to your podcast, On Investing, and really enjoying it. So kudos to you. I also have to give a little plug to my CreditSights team. I have a team of a hundred analysts in the U.S., London, and Asia, all focused on single names in those different markets. And so I read a lot of the CreditSights research when I'm putting together our strategy. I also really like reading the regional Fed papers. The different Feds put out papers just focusing on topics like inflation and other market-driving factors, and I think a lot of those are really well written and actually quite accessible, even if you are not really in the weeds on the bond market like I am. 

I read a book by Alan Greenspan about two years ago called Capitalism in America, which was a really nice reminder of the different types of cycles that we've seen in our country's history, this process of creative destruction, which is one thing that underpins the credit markets because you do see these cycles of defaults and recoveries and new sectors emerging as the leaders in the economy. And then I listen to a lot of podcasts—that's been one thing that's made running very enjoyable is now I just have a constant stream of podcasts, and I think that there are a lot of great ones out there. So you know, there's just so much really interesting information focusing on how the economy works, how these companies work, and that is the core of what we're doing as credit strategists and analysts.

KATHY: That's fantastic. It's great to hear someone else spends their free time reading what's on the regional Fed websites. I thought, you know, perhaps I was the only one with such a nerdy existence. So I'm glad to hear that you do it as well. With that, I think we're going to wrap it up. Thank you, Collin, for joining us. And thanks, Winnie, this has been great, really learned a lot from this conversation. 

WINNIE: Thank you, Kathy, and I look forward to our Regional Fed Paper Book Club that we're going to put together.

KATHY: Ha ha!

LIZ ANN: That was great. Thank you, Kathy. And of course, Collin, for a great interview. So let's now look ahead to next week, a regular thing that we do. So Kathy, what is on your radar for the week ahead? 

KATHY: Well, I think the big report in terms of economic data is going to be that PCE index. So this is the measure of inflation that the Fed uses as its benchmark. It's the deflator for personal consumption expenditures. They tend to look at the one excluding food and energy. And prior to the release of some of the other inflation data recently, it was expected to come down further. I think on a year-over-year basis, it still will edge lower, but it looks like month to month it may jump a little bit more than had been expected.

And that's going to be a big issue for the market to grapple with. We've already had some disappointing inflation numbers, and I think that that is something that, you know, the market's going to be paying a lot of attention to. Other than that, we continue to be blessed with a slew of people from the Fed talking.

So we'll try to keep track of what this one is saying versus that one, but we don't get the unemployment report until the following week. So we have a little bit of a respite on the really big news. How about you, Liz Ann? 

LIZ ANN: Well, yeah, obviously PCE I think is the big one, but we also get both consumer confidence and consumer sentiment, and in the case of the latter, which comes out from University of Michigan as part of that survey, they also do a couple different measures of inflation expectations.

So I think in conjunction with inflation reports, getting a sense of what those expectations are could be interesting. So a decent amount of, of home-related, housing-related data out too. You've got both pending home sales, new home sales, the CoreLogic Kay Schiller version of home prices. There's a couple of regional, I think Dallas Fed and Richmond Fed.

Those every once in a while could have interesting nuggets of broader economic information. We get the latest update for Q4 GDP. And then claims, you know, yeah, we don't have the big jobs report, but I think this is a part in the employment cycle, the labor market cycle, where any significant move in claims either up or down could capture some attention.

So that's what's on my radar.

So with that, we are going to wrap it up. As always, thank you for listening. Be sure to follow us for free, important in this era of inflation, for free, in your favorite podcast app. And if you've enjoyed this episode, do us a favor, tell a friend about the show, leave us a rating or review on Apple Podcasts.

KATHY: As always, you can follow our latest updates on X, formerly known as Twitter, and LinkedIn. I'm @KathyJones—that's Kathy with a K—on Twitter and LinkedIn.

LIZ ANN: And I'm @LizAnnSonders—Sonders is S-O-N-D-E-R-S—on Twitter, or X, and LinkedIn.

LIZ ANN: And I'm excited about next week. I'll be speaking with Matthew Shay, who is the CEO of the National Retail Federation, a huge organization. And I know he's going to have a pretty unique view on broadly the state of the consumer, the changing nature of retail, and of course, inflation. So stick around for that next week.

KATHY: For important disclosures, see the show notes or schwab.com/OnInvesting.