Episode Details

Earnings season kicks off with a mixed but generally constructive signal for markets, as Liz Ann Sonders and Collin Martin examine what corporate profits reveal about macroeconomic and market health. While equity investors tend to focus on near‑term earnings growth, Collin emphasizes that bond markets care more about long‑term cash flows and companies' ability to service debt. Aggregate corporate profits remain strong when viewed through broad measures like NIPA profits (National Income and Product Accounts), supporting investment, employment, and overall financial stability, even as borrowing costs drift higher due mainly to rising Treasury yields rather than widening credit spreads.

Beneath that positive backdrop, however, stresses are emerging in lower‑quality areas of the market. Collin highlights ongoing weakness among the riskiest high‑yield borrowers, where interest coverage ratios remain below sustainable levels, raising the risk of defaults if rates stay elevated. Liz Ann connects this theme to equity markets, noting a shift toward profitability and balance‑sheet strength, particularly a reversal in small‑cap performance, where profitable companies are now outperforming non‑profitable "zombie" companies. At the same time, earnings estimates have begun to deteriorate, with negative revisions concentrated in the near term and strength increasingly isolated to a small group of large-cap technology companies.

While markets appear to be betting on a resolution to the Iran conflict, risks remain tied to oil prices, inflation expectations, and consumer health, especially among lower‑income households.

Finally, Collin and Liz Ann discuss which key economic data to watch in the coming weeks.

You can read the article "Gambler's Blues: Betting Isn't Investing" on Schwab.com.

On Investing is an original podcast from Charles Schwab. For more on the show, visit schwab.com/OnInvesting.

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Important Disclosures

This material is intended for general informational and educational purposes only. This should not be considered an individualized recommendation or personalized investment advice. The securities, investment products and investment strategies mentioned are not suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decisions.

All expressions of opinion are subject to change without notice in reaction to shifting market, economic or political conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is no guarantee of future results.

Investing involves risk, including loss of principal.

Diversification and asset allocation strategies do not ensure a profit and do not protect against losses in declining markets.

Small-cap stocks are subject to greater volatility than those in other asset categories. Small-Cap Company Risk. Small-cap companies may be more vulnerable to adverse business or economic events than larger, more established companies and their securities may be riskier than those issued by larger companies. The value of securities issued by small-cap companies may be based in substantial part on future expectations rather than current achievements and their prices may move sharply, especially during market upturns and downturns. In addition, small-cap companies may hav