Liz Ann Sonders is senior vice president and chief investment strategist at Charles Schwab & Co. Prior to joining Schwab in 2002 she was a managing director at U.S. Trust. She is a regular guest on CNBC as well CBS’s Evening News, ABC’s Good Morning America, Fox News, and Bloomberg TV and radio and is often quoted in The Wall Street Journal, Barron’s, and The New York Times, and USA Today.
Do you see last week’s stock market decline continuing in a major way?
L.S.: We’re certainly overdue for a bit of a breather. The consensus has felt that for quite some time, but I don’t see any major correction.
It may be more in time than in price.
You have two types of corrections: The price correction tends to be steeper. The corrections in time tend to be flatter and not as severe, and the market doesn’t do much.
A disappointing earnings report from Research in Motion as well as the drop in home sales seemed to cause the market to drop. And now we’re close to earnings season. What’s your take on earnings?
L.S.: I think generally earnings are going to be good, but not necessarily good across the board. If you look at quarter-over-quarter earnings for the first quarter of this year over the fourth quarter and the second quarter over the first quarter, on an annualized basis they set a record for a recession.
What we know is that companies have established an incredible basis for profitability with cost-cutting and productivity. We’re not getting top-line growth.
We’re getting earnings growth because of this focus on productivity and margins, so I think we’re in a transition.
One of these days we’re going to see some top-line growth as well, but in general I think the earnings picture looks pretty good.
The dollar seems to be a big factor in the stock market direction. When the dollar goes up, the market drops. Do you agree?
L.S.: What I think has happened with the dollar in the last year has less to do with things like inflation or debt, and, you know, there’s this desire to pinpoint the fundamental factors that drive the dollar’s direction one way or another.
To me, most of the dollar’s movement in the last year has been about either risk-taking or risk aversion.
When we were in the worst part of the crisis last fall and early this year, the dollar was quite strong and was rallying most of that time because there was this massive amount of risk aversion and movement towards safe-haven investments.
The dollar got a safe-haven bed under it, particularly given the demand for Treasuries.
Stocks and commodities were going down.Now we’re seeing the mirror image of that as investors are moving away from massive risk aversion and moving out the risk spectrum as they’re looking for more return.
I think we’re in at least the early stages the recovery, and it will be sharper than a lot of people think.
