Liz Ann Sonders of Charles Schwab offered a cautiously bullish analysis of the market at the recent Inside ETFs conference. She cited Sir John Templeton’s statement that “bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.” She sees the current market in the “mature” phase of the bull cycle. “I don’t want to dismiss any of the concerns out there about the global economy, but if you look at the data, it’s not as bad as the doom-and-gloomers suggest,” she said, placing the risk of a U.S. recession at about 25%. Regarding China, she described herself as “in the soft-landing camp,” and suggested the risk to the U.S. is not large because of the minimal role exports to China play in U.S. GDP. She clearly stated the current market is “not another 2008,” describing it instead as possibly “another 1998 or 2011 based on market behavior.” She suggested the Fed is unlikely to tighten as rapidly as it had suggested, which portends well for the market in 2016. More broadly, she observed that “within secular bull markets, you can go through cyclical bear periods that have higher likelihoods of correction and volatility.” That is precisely where Sonders’ seems to believe we are now.
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The PBS Newshour reports on recent market volatility, noting a series of contributing events.
Liz Ann Sonders of Charles Schwab said, “a lot of [the current volatility] really is unfisnished business from 2015, it’s just conspired to occur in a condensed period of time, unfortunately at the beginning of the year, which I think adds to the angst of investors.” She also noted, “we do not think this is the beginning of a big nasty bear market, but it could get worse before it gets better.” Further, she opined that the financial crisis, coming within a decade of the prior bear market, “really changed the psyche of a generation of investors,” causing them to “hunker down much more quickly” than was previously the case. She thinks “that explains why we see this sense of urgency and sometimes panic kick in so quickly in this environment.” She also suggested, “I think what we’re seeing has a greater analogy to 1998 than it does to 2008 [due to] major currency disruptions, problems in the emerging markets, [and] it ultimately caused a tremendous amount of volatility and even a very severe correction in the U.S. stock market, but it didn’t take the financial system nor the U.S. economy down with it.”
Bradley Olson of the Wall Street Journal discussed the major drop in oil prices, identifying China and Iran as key drivers. Further, he noted “problems or questions about demand that would have been able to bring up the price.” In addition, he observed that “when the price goes down . . . all the producers and companies actually try to pump more oil because they try to make up for whatever [revenue] they’ve been losing” as a result of price drops. He commented that ” you have to go all the way back to the ’70s and the Arab oil embargo to find a time when the crash was as bad as it is now.”
Liz Ann Sonders, chief investment strategist with Schwab, believes the bull market will continue. She points to:
- The lack of new net inflows into equity mutual funds (unprecedented in a bull market like the current one);
- The S&P has crossed its 50-day moving average more than 50 times so far this year (much higher than earlier in the bull market);
- Stock buybacks may be supporting rises in stock prices;
- The Fed is signaling a slow tightening of interest rates, which historical data suggests produces higher returns than a fast tightening;
- The economy has added 13.5 million jobs since the financial crisis.
Purported contrary trends, such as a potential profits recession, may be explained in ways that do not contradict a bull market, Sonders suggests. Declining profits, she says, are mostly concentrated in the energy sector.
A closely fought “tug-of-war” between bulls and bears has kept stocks trading in a tight range this year, and Charles Schwab strategists think the battle could continue for a while longer.
The cyclically adjusted price/earnings ratio is quite elevated compared to historical standards. Is that bad news for stocks? Charles Schwab’s Liz Ann Sonders says it’s a complicated question.
In a wide-ranging interview with Barry Ritholtz on Bloomberg’s Masters In Business podcast, Charles Schwab’s Liz Ann Sonders offers her take on the bull market, and a look at her early years working for the great Martin Zweig.
In the investing world, the standard thinking seems to be that the older you get, the less risk you should take on. But Charles Schwab’s Liz Ann Sonders says that’s not always the case.