Schwab’s chief investment strategist, Liz Ann Sonders, addressed the opening preconference session at Schwab Impact 2016 by telling a good news, bad news story about the markets and the economy, while also addressing what the presidential election may mean for the markets.
She began her comments on the markets by reminding the thousands of attendees that “I’m a big sentiments watcher,” and presented her recasting of Sir John Templeton’s famous quote on how bull markets are perceived by investors. Her take: “This bull market was born on despair, grew on disbelief, is maturing on skepticism, and may die on acceptance.”
She said that throughout the current bull market, “we’ve been ping ponging between panic and relief.”
The markets have been affected by the policies of the Federal Reserve and other central banks, what she called ‘UMP,’ Unprecedented Monetary Policy, which has not only depressed interest income but has also led, since the end of the global financial crisis, to asset prices growing much faster than real economy prices. That, she said, has led to a “troubling gap between household net worth and GDP,” which she called “one of the biggest threats” to economic growth.
While the risk of recession remains low for the United States, which is showing only “minor stress,” her favorite recession model, the CSM U.S. Recession Probability Model, created by Cornerstone Macro, is “not flashing a recession warning.” Yes, “Inflation is picking up,” noting that “the Fed’s preferred measure” of inflation, PCE, is “running at 1.7%; the Fed’s target is 2%.” PCE is Personal Consumption Expenditures,
Some of the good news, Sonders said, is that “wage growth may be stronger than you think,” arguing that “real incomes are surging,” especially on lower end of the wage spectrum.