Surveying the Corporate Credit Landscape (With Joel Levington)

LIZ ANN SONDERS: I'm Liz Ann Sonders.

KATHY JONES: And I'm Kathy Jones.

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

Hi, Kathy. Welcome to another pod. And we talk a lot about the Fed's dual mandate on this show. I feel like we talk about the Fed more than anything else these days on this show. And it appears that the focus by the Fed is now a little bit more on the employment side of their mandate relative to the inflation side of their mandate. But of course, we now have the government having shut down.

And that means that we face a lack of data, including, at the end of this week, as you and I are taping this, no release of the Bureau of Labor Statistics jobs report, as far as we know. And other data is going to be delayed. So how are you thinking about the shutdown and the thinking around Fed policy in light of important labor market data not coming in the near term?

KATHY: Well, I think it just complicates the outlook even more, right? So we have gotten the ADP numbers, that's the Automatic Data Processing folks, as a private sector survey that they do, because they process a lot of paychecks, so they have a lot of data, but it's all private sector. And we tend to watch it, but we also take it with a grain of salt, because it doesn't always match up with the Bureau of Labor Statistics numbers, but it's all we have right now because we're not getting the government data. So that was weak. It showed a net decline in jobs for the current month and a downward revision to the previous month. And I think that that probably is an accurate reflection. I think the Fed will see it as an accurate reflection of what's going on in the private market.

And if you kind of slice and dice the numbers, you can see a lot of that is affecting small and medium-sized businesses, which are … you know, I think more profoundly affected by the policy changes that have taken place than, say, larger companies that have more balance sheet, have more earnings, have more capacity to maneuver. 

LIZ ANN: And it was the case that the large companies was the only category, 500 employees and above, that had job gains, correct? 

KATHY: Yeah, that's correct. All the losses were in the smaller companies. And really that lines up, when you read the summaries and the surveys that the various Federal Reserve banks put out. That's also what they're hearing in their districts. Smaller companies are struggling much more than larger companies in general, partly because the tariffs have increased their input costs, because everything is more expensive. It isn't just tariff-related goods, but we're seeing prices across the board go up. So I think it will be seen by folks at the Fed as a pretty accurate representation. The problem you come back to over and over again for the Fed is that inflation's too high. 

And not only is it sort of stuck close to 3%, which is pretty high, but it also seems to reflect not just tariff-related price increases, but the non-industrial, sort of non-housing-related price increases in the service sector are running over 3%. So all that makes this dual mandate still in tension for them. And I think it's going to be really a tough call. If the government shutdown lasts, you know, much longer, a couple of weeks, which may or may not happen, I don't know. But if we get to the 12th of the month, we won't get an employment report for the next month, because they do the survey during the week that falls with the 12th. 

So I mean, if this gets extended, then they're really, you know, flying blind in terms of getting good, accurate data. And I think that's probably going to make the Fed very uncomfortable. Maybe folks at the Fed will just dig in, and whatever side they're on, they'll just say, "Well, this proves that we need to cut" or "This proves that we shouldn't cut." But yeah, I think that it just makes life much more complicated and difficult. But I think Mike Townsend, our colleague, points out over and over again that markets often don't seem to care about government shutdowns. The stock market, what do you think? It looks a little soft, but, you know, what's your take?

LIZ ANN: Yeah, we're taping this the morning right after the shutdown. And as you and I are taping this, we're just early in the trading day, and there is some weakness, but I'm not going to try to extrapolate what that looks like over the next several days, but meaning between now and when this episode drops. But you're right—particularly more recent history of shutdowns, we have not seen any meaningful negative reaction other than at times, you know, intraday or at the start of the day following the shutdown. But there have been, I just pulled up the data, there have been 21 shutdowns prior to this one, with the most recent being in the period from December, mid-December, of 2018 to the end of January 2019. And for what it's worth, that was the largest shutdown of the prior ones that date back to the mid-1970s. That one lasted for 35 days. But what's interesting is that if you look at market performance during the period that the government was shut down, a lot of shutdowns occurred in the 1970s. There was six shutdowns throughout the course of the 1970s, just in the second half of the '70s. So first one was in 1976. The last one in the '70s was in 1979. They lasted anywhere from eight days to 17 days. But five out of those six, you had the market negative during the span of time that the government was shut down. 

But that also brings up an important point, which is there's so many other forces that impact what the market is doing. Anyone that was around in the 1970s—sadly you and I were around in the 1970s, although I wasn't working yet at that point, but I remember it—there were a lot of other negative forces putting pressure on equities and upward pressure on volatility, so it certainly was not just a function of a government shutdown, but most of the kind of red bars when looking at past shutdowns did cluster in that period from the 1970s, whereas the more recent period, most, in fact every shutdown since 1987, which was only one day in the latter part in December of 1987, every single one, the market has actually gone up during the shutdown period. 

But again, there are other forces that are impacting what the market is doing. So I think the bigger problem to your point is the absence of a lot of important data, for obvious reasons, given the Fed's focus on the employment side of the mandate and the fact that we're going to have to put more reliance on data points like ADP. But we've also had this concern about efficacy of the data. So now we go from concern about efficacy of the data to now we don't have the data. So I think in an environment where we've seen a little bit of some weakness in the market, some churn under the surface, all else equal, it wouldn't surprise me to continue to see some of that churn under the surface.

KATHY: Yeah, it reminds me of that saying about dorm food when you go to college. "This food is terrible, and there's never enough." People, they're going to complain about the data, but they want more of it, right?

LIZ ANN: So once again, you are interviewing a guest, so why don't you introduce him?

KATHY: Sure, Joel Levington, who I've known for a number of years, has more than 25 years in capital markets experience with a focus on corporate credit across the automotive and industrial sectors. He's held senior positions throughout the industry, including director at Standard & Poor's, managing director at Brookfield Asset Management, and most recently head of corporate credit research at Bloomberg.

At Bloomberg, Joel became the firm's most-read analyst for several years running, recognized for his market-moving analysis of companies such as Ford, Tesla, GE, Carvana, Lucid, and McLaren, among others, which shows you the kind of way the auto industry has changed over the years. But he's a great guest, has a lot of interesting perspectives on the credit markets.

Well, Joel, thank you so much for being here.

JOEL LEVINGTON: Kathy, thank you for having me on. It's always a pleasure working with you.

KATHY: Yeah, we've known each other a few years now. And I'm really excited to have you here to talk about the credit markets, because I think it's been quiet, but very interesting and unusual. So I'm curious to get your take. So let's just start out, big picture on the credit outlook right now. Spreads are tight. Does that seem about right? Or do you think some things are getting riskier, or why are we here and can we stay here?

JOEL: Yeah, no, that's a brilliant question. And let me start by saying I think corporate credit is in very good shape right now.

Companies still have plenty access to financing. I think investment-grade bond sales hit a record of $210 billion in September. And even if we think of the high-yield or junk debt, we had what, a $55 billion announcement for EA[1] Arts, or as my kids know it, as Madden Football. And that includes about $20 billion of high-yield debt financing. So clear signs that investors are eager to fund large, leveraged deals.

Profits and cash flows are holding up, though higher wages and interest costs and, you know, some volatile input prices have modestly squeezed margins. Leverage, or the amount of debt companies carry, has been relatively stable with some pressure building in certain sectors, kind of like consumer discretionary and industrial in particular. So the issue to me isn't fundamentals but really price. Investment-grade bonds trade around 75 basis points over Treasuries. The high-yield index is roughly 275, and that's close to the 2007 bubble period. On a relative basis, to me the BB[2] tier looks best positioned from a standpoint of spreads, credit risk, and duration, even after about 225 basis points of excess return this year. I tend to think of BBs as opportunistic versus BBB, yet defensive high-yield should fuse as the economy cool. CCC tier looks overextended to me given the magnitude of risk relative to single B or BB. As you know, no one is ever exactly able to point that moment where credit risk views change and why. But should they turn, the CCCs tend to perform like volatile equities in moments of those periods of time. And right now, they're trading more than 150 basis points tied to their long-term median, which is a concern to me. 

KATHY: Yeah, I have noticed … I mean, we've all been watching this tightening in spreads and migrate its way down from the upper end of investment grades into high yield. And now I guess the risk is, when those spreads start to move, they tend to move very fast, right? In the past, my recollection, although it's not precise, is you can get moves of 100 or 200 basis points in CCCs very, very quickly.

JOEL: I think you're totally right, Kathy. And so to me, perhaps like the biggest issue for me when I'm thinking about bond investors and total returns will really be items like inflation or the federal deficit and Federal Reserve actions. When I think about it, the potential for the Treasury curve to steepen is a consideration. So duration or the sensitivity of a bond price, the changes in rates is at the forefront of risks. It's one of the reasons I'm a little less dour on the auto sector than many of my public peers.

And that's because auto bonds are largely issued by the financing arms of an auto company. So not Ford, the manufacturing business, but Ford Motor Credit, they're really used to finance loans and leases. And as such, the auto index has about half the duration of the overall high-grade index with similar credit worthiness and wider spreads.

KATHY: Now that's really important because a lot of times when we're talking about credit, we're not talking about duration. So that's a really good point that in some industries the duration is much different than the index, the overall index, or the underlying industry. And that's something, I guess as a credit analyst, you really have to take into consideration.

JOEL: I think totally if you're an analyst or portfolio manager, managing duration is a critical element of the analysis. It can't just be the risk of the company, but if you're looking more broadly as to how to outperform an index, where you are in terms of your duration or maturity relative to the index can play a major component of performance.

KATHY: So as long as we're still on the auto industry, one question: Why are cars so expensive? If the spreads are good on the financing arm, why is it so costly?

JOEL: That's a great question. Unfortunately, I think it's going to be one that's with us for a little bit longer. The average price of a new car is now about $49,000, with used vehicles averaging about $26,000. And these are levels at or near record highs. During the pandemic, auto production was constrained by semiconductor shortages, supply chain snarls, and that really depleted inventory. And it pushed many vehicles well above their sticker price.

That will also have an impact, as a side note, to ABS, asset-backed securities, where vintages like the 2021 vintage where you have values that are much higher than where they are today, and that will eventually hit ABS. While these bottlenecks have largely been eased on the manufacturing side, autos discovered that selling fewer cars at higher prices was a lot more profitable than their traditional discount-driven push for volume and market share. 

Now many have maintained that approach, with Tesla being the notable exceptions, and there's reasons why Tesla has done what they've done. Now on the used car side, prices generally track new-car trends. During the pandemic, the shift towards higher-margin sales and away from leases and really selling cars as opposed to just leasing them reduced the pool of off-lease vehicles. So if you think about leases being maybe three to five or even six years out, that's the period that we're kind of going through now.

So there's the undercut of supply, which also keeps demand the same and prices high. As a side note, 45% of vehicles on the road today are over 12 years old, which is an indicator that many consumers are struggling with these issues and delaying purchases, and maybe why retailers like AutoZone and O'Reilly's have done so well. Now looking ahead, prices are unlikely to fall off significantly. Tariff costs have yet to be fully absorbed into prices, inflation has pushed input costs higher, and the expiration this week of the $7,500 federal tax credit for electric vehicles effectively increases the price for buyers. So overall, new and used vehicle markets remain expensive, suggesting sustained pressure on consumers and the potential for elevated auto-loan burdens.

KATHY: So I think what you're telling me is my 12-year-old car might be worth more than I thought it was …

JOEL: 100%.

KATHY: … in the used car market. All that aside, I was just curious about that since your specialty is the auto sector. 

Let's take a little bit of a step back because we are concerned about the economy and particularly lower-income consumers. And it sounds like, from a credit point of view, you're not too concerned about that. Would there be areas that were particularly affected by … maybe the used-car sector, but are there industries or parts of the market that would be more affected by this division we have where upper-income consumers are doing quite well, asset prices are up, they're doing fine, but lower-income consumers are struggling? So what industries, as a credit analyst, would you be watching?

JOEL: I would say you can see some of that even in the auto sector, and you can see kind of some of the bigger trends, too. Clearly the subprime user or borrower, they are struggling. For the autos, in particular Ford and GM, they have very low exposure in terms of their overall profile. I think maybe GM has about 7% or 8% of their financing receivables or loans and leases are to the subprime market, and Ford is about half. But really what you see in terms of credit quality is this mixed outlook, where for 13 consecutive quarters, net charge-offs have been increasing and are above long-term trends. And auto demand is highly sensitive to consumer health, right?

Unemployment has a negative 70% correlation to SAAR[3], or demand for auto. So if you started to see weakness, that would certainly impact how a big-ticket purchase, regardless of the company. But some of the recent data that I've seen I think is quite outstanding, if you don't mind me sharing a couple of data points with you. 

Vantage Point has this service called CreditGauge, and it shows that the 60-to-90-day delinquencies on auto loans is about twice those of credit cards. So if we're just thinking about an unsecured asset like a credit card payment versus an auto loan, you would think it would be the opposite, but it highlights the financial strain of these payments. Part of the reason for that is, as we just talked about, the high prices. But also, Edmunds reported that over 25% of trade-ins in the second quarter had negative equity on their loans. So the loans were worth more than the car. And on average, that was about $6,800. So if we put that $6,800 into the average payment, you're talking about a monthly payment of $915. If you think about the typical consumer, a $915 a month payment on an auto loan is just not going to work. Even if you think of the broader market, the average loan payment was $756 a month.

That is about 15% of net household earnings, which is really, really high. And these elevated payment burdens and negative equity and, you know, I think there's potential for rising unemployment, all suggest that credit losses can increase. And I think you're spot on with saying it's a bifurcated market out there where the weaker end of the credit spectrum will get hit first and harder.

KATHY: So you know, as a credit analyst, that's interesting to me because what you're talking about is this combination of your top-down macro view on the economy with your bottoms-up research on individual credits. What's the balance on those when you're … as a credit analyst? You know, what's more important, the bottoms up, the tops down, or is it a 60/40 split? How do you think about that?

JOEL: Yeah, that's an amazing question, and I guess that's part of being a credit analyst. It's part art and part science. I'm not really sure there's an exact percentage that proves correct. But I guess what I would say is that when I think about the macro view, that kind of provides the credit analyst the context or the backdrop in which a company is going to operate in. 

So items such as changes in growth and inflation on revenues and costs or industry cyclicality versus stability or how policies or regulation may impact fundamental performance, or even how rates and access to credit markets evolve, provide that macro landscape. I think the credit analyst's role is to take those considerations and meld them with the bottoms-up view of a company for items like issuer's financial risks, its cash flows, the company's strategy and event risks. And stress testing or scenario analysis, so for example, you know, like what the impact is of a 1% decline in GDP or a 1% increase in funding costs have on fundamental views is really where the analyst determines credit worthiness and macro views becoming melded or joined together. For me, once that view is generated, I like to compare that against peers and from there generate relative-value views.

KATHY: Yeah, so that's very different now. I have no experience other than a brief unsuccessful foray into equity research. But it sounds very different in many ways from what an equity research analyst will do. So your metrics are really more about who can pay the bills and who can't, right?

JOEL: 100%. I think equity and credit analysts, they share many tools, but the mindset to me is very different, with maybe the three biggest distinctions being the primary objective, to your point, key metrics, and maybe also time horizon. The equity analyst is probably asking, "What is the company worth, and how can I make money if it grows?" Whereas a credit analyst is probably going to ask, "Can the company pay me back? What are the risks that it won't?" 

So if I look at an example like Nvidia, the company grew revenues, I think, about 78% last quarter, which is absolutely remarkable for a firm of its size. So for an equity investor, that growth translates into a focus on revenue trajectory, return on capital, and valuation multiples, such as price-to-earnings. Now, as a bondholder, the story is much more constrained. Nvidia's largest bond is one that's due in 2050 and pays just a 3.5% coupon. So whether Nvidia grows 78% or 50% or 5%, the bondholder's upside is capped, right? If everything goes well, they get paid as promised. The risk, however, is very asymmetrical. If something goes wrong, the downside can be severe. So that asymmetry shapes the metrics that I think each side watches. 

Credit investors emphasize, to your point, coverage ratios and liquidity and financial leverage to assess downside protection, while equity investors lean on growth and profitability metrics. Now, you were a equity analyst, so you probably have better insights than me. I will say time horizons for a credit person is really, I think, much more short-sighted, right? In investment grade, I would say maybe 12 months is how far you're looking out. And a high-yield bond, maybe it's six months or less, depending where on the credit spectrum you're thinking about. What do you think about in terms of equities and as you think about upside potential, I would assume that you take a longer-term horizon?

KATHY: Yeah, I say it was a brief foray for me because I found myself thinking like a credit analyst and not like an equity analyst. But I think that, yeah, it's a long-term time horizon, but it's also one that I think there's just a lot of room for imagination, whereas I feel like a credit analyst doesn't really have the capacity to imagine outcomes that aren't easily analyzed in numbers. So there's not a narrative as much associated with a credit analysis as there is with equity analysis because you can see valuations can get wildly stretched. They can go way up or way down based on the narrative, the story that the market wants to tell at any given point in time, and that gives you a lot more volatility, too.

But there's also, I find with equity analysis, oftentimes analysts in their own sectors will extrapolate into the future for a fairly long period of time and not have as much thought about scenario analysis perhaps as a credit analyst might because they have so many immeasurable or hard-to-measure factors that they use.

So that's why I came back to fixed income. 

JOEL: Both of those make a lot of sense.

KATHY: So that does remind me, though, because the other analysts we pay attention to are the rating agencies. So I'm an investor, and I pull up your research, and I look at what you have to say about an industry or a particular bond in a company. And then I might go over and look at Standard & Poor's or Moody's or Fitch. How do I compare those two kind of analyses of the credit markets?

JOEL: Yeah, that's a great question. Credit ratings to me are an incredibly valuable starting point for analysis. They provide a common language across markets. They broadly capture default risk by rating tier, and they directly affect a borrower's funding costs. For those reasons alone, no serious credit investor can ignore them. That said, ratings are not perfect. Ratings are often described as lagging indicators. To me, maybe this is because I was at one of those shops earlier in my career, I see it a little differently. 

For me, the real limitation is that the rater's methodologies or their approach to analyzing credit often excludes anticipated changes to a base plan. So things like an acquisition or a spin-off or change in financial policy or regulatory changes or event risk or even how the market may perceive the company's credit worthiness are often not incorporated into their views, altering the risk profile, you know, well before the rating agencies adjust their view. 

Now, a case in point for me is General Electric. As early as 2012, when GE was still rated in the AA category, I was discussing on TV that the company should break itself up because the risks were building, particularly in its finance arm. Now, unfortunately, those concerns proved, you know, fairly accurate. By 2018, GE faced significant stress. I'm sure as you remember, the bonds were trading at levels more consistent with junk despite strong investment-grade credit status at that time. Now eventually GE made a brilliant call by hiring Larry Culp, who in 2021 announced the breakup of the company, and that paved the way to reduce financial risk. So investors who recognized the risk early avoided about six notches of rating downgrade all because of different items that are kind of not incorporated into a base plan. So to me the takeaway is ratings provide a baseline, but analysts add value by identifying risks and opportunities before rating agencies move. And the ability to look beyond the headline rating is really what separates routine monitoring from true investment insight.

KATHY: That's a great point. And there's a nuance now in the market … I'm going to sort of circle back to this kind of overall view of the credit markets where spreads are so tight. There's been a factor in the last couple of years that I think is relatively new for most of us, and that is private credit and how it's grown to be such a big factor in the market and how it's influencing the public market. Can you talk a little bit about that and where you see it going?

JOEL: Yeah, well, private lending, to your point, has really exploded over last five to seven years and to a point where now, I guess, it will be an option for us when we're thinking about our 401(k)s. Although, not sure that's the appropriate investment for a long-term consumer. But really, I think what it's done is its impact on the high-yield market shouldn't be overlooked. Many of these companies would have been in the high-yield bond market and have moved into the private markets.

And so many of the weaker names that you might traditionally see, maybe like the lower end of the spectrum, the B minuses or Bs or CCC pluses, really aren't there as much. And so credit worthiness, even if credit metrics look similar, the quality is probably improved in the high-yield market. Now, I guess only time will tell if that proves accurate or not. But I would think many of the really riskier companies have moved away from the public domain. I guess the other thing it's done is really capped the amount of high-yield bonds that are available to purchase, and that puts a underlying, you know, change in the supply-demand mix of bonds and perhaps is one of the reasons why that sector or that asset class might stay tighter than historic levels simply because there is this new creature that's out there. Now, you know, it's hard to say as you start putting those bonds together or the loans together and you have different CLOs, collateralized loan obligations.

To me, transparency is always a value, and it's hard to put a basis-point amount on that value. But really, where you have opaqueness, it creates the situation where a retail investor really needs to think deeply about how much they want to be exposed to a market like that because they won't have the same kind of insights or access to a management team as institutional investors may have. So it's a great tool for certain companies, but I'm not sure if it's prudent or appropriate for retail investors to get overly enthusiastic about it.

KATHY: Yeah, I'm glad to hear you say that because that's been our point of view as well. The value of liquidity and transparency are, as you say, hard to measure, but you only know how valuable they are when they disappear. We've been through a couple of cycles over the decades where not having that liquidity and not having that transparency have been quite detrimental for the smaller investor in particular, who has no real place at the bargaining table. So it's something we always kind of caution about that you don't want to get overly exposed to something like this. I feel like especially at this point in the credit cycle, spreads are really tight, valuations are really high, is this when you want to kind of overload on something that may be, based on what we know, pretty highly valued with pretty weak covenants, I think, for the lenders?

JOEL: I think you're spot on, Kathy, with that point. It reminds me of one of the portfolio managers that I worked with at Brookfield, my man, Dom Bonanno, shout out to him if he's listening. But Dom told me the first day that I was at Brookfield, "If we're not getting paid to take a risk, why are we taking it?" And I think for investors that are thinking about this sector, it's very unclear, to your point, how much it's worth having liquidity and transparency to these assets, but it can be worth a lot, to your point. As soon as markets catch a little bit of a cold, it doesn't really require like a full flu, but simply just a sneeze can really get these bonds moving, and then it's too late to really do something about.

KATHY: Yeah, I think the bruises of the financial crisis are still with us, to some extent. We remember when that liquidity dried up, and there was no access to money that people wanted to get. And that can be a big drawback, so I appreciate that. But it is interesting how then it affects the high-yield market and can explain why the public market has been doing so well despite, you know, the challenges to the economy. 

So I really appreciated this. I love a deep dive into credit. We could go for hours. Any other kind of nuances, anything new on the horizon that you're seeing or what is it you're watching as we go into the government shutdown, fourth quarter? Who knows what's going to happen in 2026? What's your high-level thought?

JOEL: Yeah, well, the government shutdown, I guess, you know, there's … I think there's been about 21 of them and over time, and something like over the last 14, 10 of them have lasted three days or less, you know, usually around a weekend. So people get a couple of days off. So it's … I don't particularly get excited about that, but I am kind of focused heavily on the inflation side and maybe the tradeoff between rate cutting and inflation and where that is going to play out. I think that might be the bigger issue for everybody going into 2026 and how that affects unemployment and where that balance is going to be between acceptable quote-unquote "acceptable" unemployment versus inflation. And I think that's going to be the fine line that people are going to be needing to think about and walk on in 2026.

KATHY: Yeah, that's very much where we're coming from. We're still in the steeper-yield-curve camp that, you know, long-term rates just don't have a lot of room to move down, even if the Fed can cut, simply because the term premium, the extra risk premium investors demand these days, is likely to stay elevated with inflation pressures still up and federal budget deficits continuing to climb, you know, ad infinitum.

Yeah, very similar view here. And as a result, we've been kind of cautiously optimistic. We think in fixed income, you can earn the coupon and get pretty decent returns in solid, high-quality bonds. But we're not really stretching anywhere right now because there's a lot of things on the horizon that are a little bit troubling.

JOEL: Yeah, maybe it's our … both of our Midwestern backgrounds, maybe we're being a little prudent, but I think it, to your point at this point in the cycle, that's probably not the worst place to be. So I'm glad it gives me a little bit more comfort with my views that I get to be in the Kathy Jones camp this time.

KATHY: Oh, that's great. Well, so far, so good. We'll see. We'll see how the future looks. But thank you so much for joining me. I really enjoyed this conversation.

JOEL: My pleasure, thank you.

LIZ ANN: So Kathy, looking ahead to the next week, aside from the obvious focus we're all going to have on the government shutdown and when that gets settled, what else do you think should be top of mind? What's top of mind for you? What should investors be focused on?

KATHY: Well, it is going to be difficult if we don't get any economic data from the government. Then we're all sort of searching around for direction. And I think the bond market will probably be in this sort of back-and-forth waffling mode as a result. If we do get the data, then obviously catching up on the employment numbers is going to be really important.

We will get the ISM Services Index, which is actually a misnomer. It's actually the non-manufacturing index. But that being said, I think that that can provide some data that would be interesting for the markets. And then increasingly, there probably will be a focus, as well as Washington, on just international, what's going on in other bond markets and what's going on with other policies. We probably have seen the extent of rate cuts in many other countries at this stage of the game. They'll either take a pause, I think, or we might see, say, in Japan, nudging, allowing rates to rise up a little bit. So I don't think we'll get a lot of help from outside. But given the possibility of not having any data from the U.S., we'll probably, in the bond market, we'll start taking cues from elsewhere. How about you, Liz Ann?

LIZ ANN: Well, you mentioned the ISM data, and even though we don't do this on camera, you and I are on camera, as is our producer, and I could see him bugging out because you did not spell out the ISM acronym. So I'm going to … Institute for Supply Management. And you're right to point out that we generically call non-manufacturing "services," because that's more understood just in the language. 

But we did, as we are recording this, get the manufacturing, and that was a bit weaker than expected, remaining under the 50 line at the headline level, which just is the demarcation between expansion and contraction. And what I think will continue to be important within some of these data points, and these are generically thought of as PMIs, so Purchasing Managers Indexes, is the prices components. And even though the prices in the ISM Manufacturing Index came down a little bit, they're still in the 60s. So that suggests still upward pricing pressure on manufacturers. And we'll see what services. We also get S&P Global has a version of the PMIs, both on the manufacturing and non-manufacturing side. And there's often a lot of interesting nuggets within the release of that data. And much as with the ISM, I think it's important to look at some of the verbatims that you're hearing from individual companies. 

You know, speaking of companies, we're also in the lead-in to the start of earnings season and the absence of government data. I think the start of earnings season will be an important one as we hear from companies. So we may start to get some flavor of earnings. This is the period where you get potentially some pre-announcements. So that'll be on my radar. And then another jobs-related metric that shouldn't be impacted by the government shutdown is the Challenger layoff announcements. So that, for obvious reasons, tends to be a leading indicator because first you get layoff announcements, then you get the layoffs, then it feeds into unemployment claims, eventually into the unemployment rate. So absent a lot of the government release data, Challenger, I think, will be an important data point. 

And then finally, the University of Michigan version of consumer sentiment. We got the recent consumer confidence, and there's still weak spots there. Similar types of questions that UMICH asks consumers, but the UMICH data tends to be a little bit more biased by what's going on in the inflation side of things, where consumer confidence, put out by the Conference Board, just based on the types of questions they ask, tends to be driven more by perceptions around the labor market. So that's also on my radar. 

So that's it for us this week. Thanks for listening. As always, you can keep up with us in real time on social media, I'm @LizAnnSonders on X and LinkedIn. Continue, please, to be mindful of imposters. I still have a lot of those.

KATHY: And I'm @KathyJones—that's Kathy with a K—on X and LinkedIn. And as a reminder, you can always read all of our written reports, including tons of charts and graphs, at schwab.com/learn.

LIZ ANN: And if you've enjoyed the show, we'd be so grateful if you would leave us a review on Apple Podcasts, a rating on Spotify, or feedback wherever you listen, or tell a friend or lots of friends about the show, and we will be back with a new episode next week.

For important disclosures, see the show notes or visit schwab.com/OnInvesting, where you can also find the transcript.

[1] Electronic Arts, https://www.ea.com/

[2] Sub-investment grade/high yield bonds are bonds with a credit rating below investment grade (Baa3 or BBB-), as judged by the bond ratings assigned by one of the major rating agencies: Moody's Investors Service (Moody's) and Standard & Poor's. The ratings are the opinion of the agency. They are not a guarantee of credit quality, probability of default, or recommendation to buy or sell. (https://www.schwab.com/public/file/p-4635483/)

[3] Seasonally Adjusted Annualized Rate