Charles Schwab Chief Investment Strategist Liz Ann Sonders, who has been pretty cautious in recent months, offered a positive perspective on the market this morning. Sonders told Yahoo! TechTicker’s Aaron Task that — while neither she nor anyone else knows if stocks have bottomed — we are at least seeing several signs typical of the end of a bear market.
Among those signs, Sonders says, are all-time high cash levels in 401k accounts; treasury yields falling to — or even below — zero; and the fact that as of November, the S&P 500’s 10-year return matched the worst in its history. Historically, she says, the market tends to revert toward the mean, which means that bad 10-year periods are typically followed by good 10-year periods. “The math is starting to work in your favor in terms of prospective returns,” she said.
Sonders also says many investors probably took on too much risk before the recent crash given their actual risk tolerance levels. She said the crash has thus presented a chance for investors to look inward to see how much risk they really are willing to handle.
The risk issue may have turned the other way now, however, as Sonders says many investors may have moved too much cash out of the market, limiting their future gains.
In another interview posted on TechTicker, Sonders says that U.S. policymakers have responded much more quickly than Japanese officials did in trying to halt the fallout from Japan’s 1989 real estate bubble bursting. But, she adds, the “velocity of money” — the rate at which money changes hands — isn’t growing nearly as fast as the Federal Reserve is supplying funds, because banks are hoarding cash and consumers are avoiding further debt. “The confidence and fear thing hasn’t been arrested yet,” Sonders says. That’s part of why she thinks the recession recovery will be a slow one. One good sign: Sonders says she thinks this will be the recession’s worst quarter for GDP declines, with the contraction slowing in future quarters.