Sonders on Double-Dip Fears, Fed Policy

Charles Schwab Chief Investment Strategist Liz Ann Sonders says she thinks it’s unlikely the U.S. will suffer a double-dip recession, and says the Federal Reserve’s talk of continued stimulative policy may be hampering the recovery.

“While slowing, the economic engine continues to move forward,” Sonders says in her latest market commentary, written with Schwab’s Brad Sorensen and Michelle Gibley. “We believe this forward momentum will continue and, in fact, accelerate again, while we remain relatively optimistic on the market’s prospects. While we don’t discount the possibility of a return to recession that would likely be a tough blow to the market, we remain firmly in the camp that such a scenario will be avoided.”

Sonders says widely divergent opinions about where the economy and market are heading is making for a range-bound market. For investors who need to adjust their asset allocations, such a range-bound environment can be beneficial, she says. But, she adds, “This doesn’t mean we advocate trying to time the market — that tends to be a losing game. But within an already established strategy of stock investing with a longer-term horizon, these swings can prove to be beneficial from a rebalancing perspective.”

As for the government, Sonders says the market is usuallly helped by knowledge that the Federal Reserve is going to continue a stimulative policy. But currently, the problem isn’t that more money needs to be pumped into the system — companies have plenty of cash, she says; the problem is they just aren’t using it.

“With rate expectations anchored at zero, there’s little incentive for companies (or consumers, for that matter) to spend or invest while the economic environment remains uncertain. The cost of inactivity is low,” she says. “Perhaps, if there were an expectation that rates would be going up soon, consumers would be more confident that their savings would earn interest and thus be more comfortable spending, while companies may look to borrow while rates are low and invest that money.”

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