Sonders Not Panicking

Liz Ann Sonders, chief investment strategist at Charles Schwab, says the Greek debt crisis is much different in nature than the subprime mortgage crisis that pummeled U.S. markets in 2008, and says investors who’ve been sitting on the sidelines should use the recent market dip as a buying opportunity — if they have the stomach for it.

“The key is the investor’s current allocation relative to plan and risk tolerance,” Sonders writes in a piece entitled “Panic is Not an Investment Strategy”, available on Schwab’s web site. “For those investors who have been sitting on the sidelines in cash, need equity exposure to outpace inflation, but also have the stomach for the volatility, they should be buying into these dips. But for those investors who may be over-exposed to equities (or other volatile asset classes), it may make sense to trim back into any oversold rallies.”

Sonders says that the recent dip has made stock valuations and sentiment levels more appealing, and she calls the April U.S. jobs report “another notch in the belt of the economic recovery”. She also offers some lessons of debt crises that have occurred in the past few decades, citing research from the firm BCA.

Among the lessons: “Past crises have all involved debt restructuring with no country having avoided some form of default”; and “there was always a massive rally in stock prices after a credible rescue package was announced (following the ‘cathartic trough’)”.

As for whether the Greece crisis will be as bad as the subprime crisis, Sonders offered a few thoughts: “The crisis in southern Europe is on a much smaller scale than the subprime crisis, with U.S. exposure to Greece very low relative to Europe as a whole,” she says. “We also have a much healthier U.S. and global economic environment, with recovery well underway.”

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