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Stocks moving higher to kick off the trading day everyone after the number of Americans filing for new unemployment claims hit an 11 month high last week. Fueling optimism for a September rate cut to discuss what this means for markets. We've got Jeffrey Kleintop who is the Charles Schwab chief Global Investment strategist. Great to have you here with us this morning just after the opening bell. So, you know, first and foremost, you get a reading like this on the jobless claims front and of course we pair that with what we heard from Fed Chair J. Powell yesterday. Seems like all systems are go for a September cut.

Well, yeah, I mean the market is pricing in 100% odds of the first cut in September. The problem though with that is that any disappointing economic data may no longer be welcomed by the market. There's no upside to the policy outlook and only downside from a weaker economy and labor market. In fact, the economic surprise index is now negative in the US, meaning data is coming in below expectations and there's lots of data between now, of course, and the next Fed meeting on September 18th. Now we've got the Jackson Hole Symposium on the 22nd through the 24th of August. That's probably the next take on how the Fed is seeing this data.

You know, Jeffrey, that's a really interesting point because we have seen the markets react, I guess optimistically, maybe is a better way to put it, to some weak economic data. So now are we reaching that point where the markets are going to start viewing weak economic data as bad news then for the market and and and what would be what would be the cause, do you think of that sentiment shift?

That's what I that's where I think we're at now. You know, we we've got a number of rate cuts priced in over the next two years. Uh anywhere from, you know, four, five, six, depending on whether you're looking at the the uh uh the futures or or the options. It's a lot and there there's still a lot of services inflation, there's still a lot of issues around inflation. It's not perfectly clear that that's going to happen. And so I I think what the more likely outcome is is that the weakening economic data, particularly on the labor front. Now we've seen job openings begin to level off. Now maybe we start to see it tomorrow begin to show up in actual job counts. That could begin to sour the market on the outlook for consumer spending, so important to sustaining the earnings growth we've seen this quarter.

And so Jeffrey, as we're continuing to kind of look throughout the second half of this year and try to figure out, okay, if bad news starts becoming bad news, then what does that mean for some of the rotation that investors should be considering within their own portfolio positioning right now?

So I think I know tech is super hot right now. We're going through a a week where we're getting a lot of good good tech numbers, but I I think we want to take a look at sectors like financials, you know, the Bank of England's rate cut this rate cut decision today was a close call. UK inflation's at 2% in May and June. Financials in the UK are outperforming the S&P 500 and that's because the yield curve there is now re uninverting, it inverted, it's now resteepening again. And there's probably more steepening to go. Uh the UK financial sector is up 18% total return terms this year. That's ahead of the S&P 500. I think investors may be missing that with their just sole focus on US equities.

Jeffrey, when we talk about some of that risk on rotation that we have seen, at least in the last 24 hours, 48 hours, we have seen a bit of a sentiment shift in terms of it looks like that appetite for some of these AI stocks is back, particularly when you take a look at chip makers. I'm curious though from your perspective from from a from a strategist perspective how you're looking at the gap that we're starting to see form between the hyperscalers versus those that manufacture the chips and whether or not you think that bifurcation maybe is something that's going to hold at least in the immediate term.

I think it's interesting to watch. I think it's critical um to take a look at what the the uh uh policy environment is. It's not just the outlook for demand, but you know, we've got the uh this risk around the foreign direct product rule around the world. We've seen all the semi equipment and and other related shares really rally powerfully, but if the US does impose controls on foreign-made products that even use the smallest amount of American products in their exports to China, that could be a major problem. ASML, the Netherlands company that is the biggest semiconductor capital equipment company in the world, gets 50% of their revenue from China. And yesterday we had a story from Reuters citing that those aggressive sanctions may not be implemented for Japanese companies and Netherlands companies. The market rallied on that. I think the market might be overlooking the reason those companies may be being excluded and that's because they're probably going to agree to even stricter export policies on China. That could weigh on sales growth. That's something the market's not considering right now.

All right, Jeffrey Kleintop, great to get your insight. Thanks so much for hopping on with us this morning. Charles Schwab's Chief Global Investment strategist. Thanks.