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Liz Ann Sonders: This Bull Will Continue Running
Aspire, Thought Leaders | 04 June 2015
By: Lim Si Jie
Articles (169) Profile

Liz Ann Sonders, who was named as one of the 25 most powerful woman in Finance by American bankers, is currently the Chief Strategist at Charles Schwab. Charles Schwab is an investment firm that has about $2.5 trillion assets under management currently.

Liz Ann Sonders was recently invited by Bloomberg View to discuss about her opinion about the market. She continues to maintain a positive outlook as the market continues to hit higher highs. Why? “Because we are in the beginning of a secular bull market”, said the Charles Schwab Chief Strategist.

Don’t Fight The Fed

The bull run is in its sixth year now; earnings collapsed in 2010 but came snapping back in the past five years. Earnings have been consistently increasing with the appreciation of the market and corporations are huge buyers of their own stocks when its share price was distressed.

Corporations have by far been the most consistent buyer in the market that supported the gains in the stock market.

The three rounds of Quantitative Easing (QE) introduced by the Fed have supported the bull run. In addition, traditional fundamental approaches also contributed to the bull run. Sonders pointed out that traditional fundamental valuation might not have gotten the same impact had the Fed not introduced QE.

Market Strategy: Inflection Points

Sonders considers identifying major macro trends as part of her top down investing strategy at Charles Schwab. In particular, Sonders shared one of the things that she looked for most in a market during her interview: inflection points.

Inflection point

An inflection point is a point on a curve at which the sign of the curvature (i.e., the concavity) changes. If an investor does not understand the power of inflection points, they will likely learn it the hard way. The stock market, a leading indicator, often has its best performance when it launches off inflection points.

Economic Data Lags The Market

Relating the stock market to the economy, an inflection point is when economic data has stopped worsening. It is the point in the economy at which the data is the worst. Investors tend to be emotional at this point in time as they are afraid to be catching the falling knife.

Most investors want to await confirmation from better economic data before they decide to enter the market. However, investors would more often than not miss the ideal point of entry if they were to wait for such news to reach their newsfeed.

Sonders used the example of the 2009 recession to illustrate her point. When it ended in June, investors were not informed of the economic data reflecting it till 2010. If investors had been vested at the inflection point, they would have earned a forty percent gain.

Forward Outlook

On a longer time frame, Sonders believes that 2009 was just the beginning of a secular bull market. Similar to the three other secular bull markets ((1920s, 1940-1960, 1982-2000), there were negative real interest rates in the beginning of this time’s secular bull market, coupled with high unemployment problems.

Si Jie is no stranger to investing having started his journey at a young age. He is heavily influenced by acclaimed investors such as Benjamin Graham, Peter Lynch, and John Rothchild.

Please click here for more information about this author.

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