Liz Ann Sonders began her presentation at the Schwab Impact preconference Tuesday in Denver by quoting Sir John Templeton on bull markets, which the famed investor said “are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”
This current bull market remains in the optimism phase, Schwab’s chief market strategist said, and positing that “we’re nowhere near the euphoria we see at market tops.” In a wide-ranging talk on the markets and economy, Sonders said saw a lot to like, but warned that “volatility is here to stay.”
Among the good news for the markets and economy: the risk of recession is low; average payrolls are growing (which she suggested may have helped spur the Federal Reserve’s move to end quantitative easing); the U.S. had a record deficit drop in 2013; private-sector deleveraging “has come a long way”; the spread between private-sector and government spending is narrowing, helped by increased federal government spending since the sequestration; and the U.S. is now the world’s largest oil producer.
With the oil/gas sector’s capital expenditures accounting for only 8.2% of total U.S. capital expenditures, “decreasing energy prices may not take such a bite” out of the economy, Sonders said.
The Fed’s inflation benchmark, the personal consumption exenditures index (PCE), is “sitting well below the 2% threshold,” she said.
In her trademark “on-the-one-hand, on-the-other-hand” approach, Sonders did point out some of the less-than-good news. For example, consumer spending, which she calls the “big whammy” that accounts for two-thirds of U.S. economic growth, decreased during the third quarter of 2014. That record deficit drop in 2013 won’t be matched this year, and the debt remains at 100% of GDP.
The International Monetary Fund last month projected U.S. GDP growth of 2.2% in 2014 and 3.1% in 2015, but Sonders said “the IMF stinks on forecasting.”
In a follow-up interview Wednesday, Sonders said that U.S. economic growth “will have to come from the other one-third of the economy,” including government spending.