Two Charles Schwab investment strategists took the stage at the Schwab Impact conference with a warning that current economic concerns could become more troublesome if they move from trade issues to affecting jobs.
Jeffrey Kleintop’s main message was that the Federal Reserve is no “superhero” and can’t help the economy forever by continuing to cut rates. The key will be watching trade talks with China and a possible deal, and if manufacturing problems spill into the job market. He also worries about consumer confidence being too high, potentially now at a tipping point, and he’s worried that it’s “vulnerable to any pullback in the job market.”
“People say the job market is a lagging indicator and it’s like the trade slowdown, and the manufacturing slowdown, and earnings slowdown and business equipment slowdown, but it’s the next shoe to drop,” said Kleintop, Schwab’s chief global investment strategist. “It is the most important connection to the rest of this, and is the support to the global market which is the consumer.”
This all makes 2020 hard to forecast, especially if there isn’t a China trade deal. However, Kleintop is optimistic that trade relationships with Canada, Mexico, and Japan are strong.
His bottom line is to buy value, not growth, and continue to rebalance.
Liz Ann Sonders, Schwab’s chief investment strategist, agreed that the trade deal will affect the market, but also noted that there are negative expectations both in third and fourth quarter.
2019 is a better year than 2018, but “we are in a mini-slowdown,” she said, adding that if manufacturing goes down, it could become a real recession.
She noted most leading indicators were in good shape, but could be turning.
She also said “economic surprise” indexes’ recent rise was seen by some as a “legitimate improvement. But what some don’t see in the Citi Economic Surprise Index is it has a higher concentration of lagging economic indicators.” Instead she looks at Bloomberg’s surprise index, which breaks down subsets of indicators, including leading indicators, “and that has been more subdued.”