Sonders: Falling Correlations a Good Sign; Sees Front-Loaded 2011 Gains

Charles Schwab Chief Investment Strategist Liz Ann Sonders sees strong, front-loaded gains for the market in 2011, and says that fundamentals should become more important with correlations between asset classes beginning to fall.

“Correlations are starting to come down. It’s a function of where we are in the economic cycle and the market cycle,” Sonders, whose calling of the start and end of the 2007-09 recession proved very accurate, tells “That will serve investors well in terms of fundamentals becoming more important. Diversification starts to work a little bit more effectively as you bring more individual investors back into the market and also has the effect of bringing correlations down.”

Sonders sees big gains for the stock market early in 2011, followed by a meandering path through the rest of the year, CNBC reports. “We’re going to get a pretty significant move at some point,” she said. “You have to watch technicals and sentiment as that happens. If that was really excessive and you find enthusiasm and euphoria from individual investors that we’ve seen in past market tops, then I’d be really worried.”

Sonders notes that real consumer spending has already hit its 2007 highs, and she thinks consumers are going to be more willing to open their wallets going forward. She says consumers are suffering some “frugality fatigue,” meaning that they are tired of cutting costs and are ready to spend more.

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