Schwab Investment Chief: Stock Market Entering “Sweet Spot”

The stock market is now in a “historical sweet spot” following the mid-term elections, Charles Schwab’s chief investment strategist told financial advisors at the IMCA Advanced Wealth Management Conference in San Francisco yesterday.

The stock market is now in a “historical sweet spot” following the mid-term elections, Charles Schwab’s chief investment strategist told financial advisors at the IMCA (Investment Management Consultants Association) Advanced Wealth Management Conference in San Francisco yesterday.

“This is the best time to be invested in the stock market,” said Liz Ann Sonders, who is also a senior vice president at Schwab. There are very strong seasonal tendencies for growth.”

Sonders cited data showing a steady rise in the S&P 500 average performance for the two years following a mid-term election.

The recent economic trough also positions investors well for the next two years, she added.

The market favors weak economic growth, with stocks typically leading the economy, she said. Investor sentiment is moving swiftly with the market, Sonders said, and the “wall of worry” slowing investments is diminishing with the market rally. What’s more, much of the money now in bonds is chasing performance, she argued, and could “turn tail very quickly” and go into equities.

The Case for Optimism

Sonders spent most of her presentation making a spirited case for an optimistic view of the economy. “Pessimism lingers long after the fundamentals indicate otherwise,” she maintained, “I think the consensus is that there is now more cause for optimism.”

Leading economic indicators have been mixed, but do not signal a double-dip recession, Sonders said. She noted improvements in average workweek, unemployment claims, stocks and money supply and worsening reports of vendor performance, new orders in capital goods, building permits and consumer expectations.

“It should be fairly easy to navigate around a double-dip,” she said.

Looking at components of the gross domestic product, Sonders cited a sharp improvement in business investment from the fourth quarter of 2008 to the third quarter of 2010 and a slight, but significant rise in consumer spending for the same period.

“I think we are likely to see continued mild positive growth in consumer spending,” she told the audience of financial advisors.

Debt and deficits remain “the ultimate burden” on the economy, according to Sonders. She said she understood the Federal Reserve Board’s reasoning for its recent “quantitative easing” of the money supply to boost the economy and fight deflation, but worried “unintended consequences” later.

Consumer confidence was a key to recovery, she said, noting that while optimism has increased, the percentage of consumers who say they are uncertain about the prospects for the U.S. economy has remained steady at around 40 percent.

While acknowledging high unemployment, Sonders argued that there was enough “underlying strength” in the economy to propel job growth.

“We haven’t had the spark yet to unleash the animal spirit of optimism,” she said.

Sonders also pointed out that the unemployment rate lags an economic recovery “big time,” and also cited pent-up demand, improving bank loans and impressive corporate profits and cash on balance sheets.

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