Attendees at the Fi360 Conference’s opening general session today in Nashville were treated to the market insights of Liz Ann Sonders, Senior Vice President, Chief Investment Strategist at Charles Schwab—and what those insights could mean for investors.
Sonders turned the spotlight to current forces influencing markets, where we are in economic cycles and what impact those forces may have on client portfolios.
She explained how markets went into “riot mode” in December with all the markings of a panic low, what spurred the rally since then and why she’s encouraged that it’s been met with a healthy dose of skepticism by the “smart money.”
She predicts a recession, but stressed that it’s not something alarming—“that’s what happens at the end” as we enter the last stages of an economic cycle and exit an extended period of low volatility.
What trips up investors with economic performance vs. market performance, she said, is that with Main Street, we tend to look at is as “good vs. bad or strong vs. weak,” where it should really be “better vs. worse.”
“Strong data at top of the market is why investors stay in too long,” she said.
One topic Sonders touched on repeatedly due to its potential impact on the markets and economy is whether or not the U.S and China will come to a trade agreement, and if so, will it be a “real deal” or a “wishy-washy” one?
An analogy that Sonders said resonates with her is to think of the U.S.-China trade negotiations in terms of a poker game, where each side is playing a weak hand. The difference, Sonders said, is China President Xi Jinping has a good poker face, and he’s the only one playing China’s hand. But there are lots of people playing the U.S. hand, and none of them have a good poker face.
She also talked about not knowing how to escape a vicious circle: You launch fiscal stimulus through tax cuts; when you do anything to stimulate the U.S. economy, both business and consumer spending increase, but we spend more on imported goods; which in turn widens out the trade deficit. But the trade deficit is the yardstick that makes government want to increase tariffs. Who pays more with the increased tariffs? U.S. consumers and businesses.
Worst case scenario, Sonders said, is additional tariffs kick in, and that would give 2019 U.S. economic growth “a haircut.”
The Fi360 Conference continues through Friday at the Omni Hotel in Nashville.