Sonders Sounding Bullish, Sees Possible Return of Animal Spirits

Charles Schwab Chief Investment Strategist Liz Ann Sonders says that while a number of concerns about the global economy remain, several positive signs — including falling correlations, improving employment conditions, and even a possible return of animal spirits — make her think the U.S. market will push higher.

“We believe job growth will pick up speed throughout the year as confidence improves and businesses look to keep up with stronger demand,” Sonders writes in her latest market commentary on Schwab’s web site, along with Brad Sorensen and Michelle Gibley. “Should this happen, we would likely see a snowball effect where more people working leads to higher demand, which leads to more workers needed to meet that demand, and so on.”

Sonders says a recent increase in business loans and a jump in merger & acquisition activity show the corporate sector is gaining confidence. “It’s been a while since the ‘animal spirits’ phrase has been tossed around on Wall Street but we believe this could be one of the surprises of 2011,” she says.

Sonders also says Schwab continues to think that interest rate hikes are overdue from the Federal Reserve, and she says the government needs to do something about its big deficit and debt problems, though she’s skeptical it will. She also discusses the debt situation in Europe, and its impact on stocks. “European stocks appear to be attractively valued,” she writes. “However, outside of companies with high exposure to growth coming from the United States and emerging world, we remain suspect of the ability for European stocks in general to outperform in the face of growth headwinds.”

One area Sonders is intrigued by: emerging markets, which she says could be poised to outperform as they may begin to slow their tightening monetary efforts, while developed nations begin their tightening efforts.

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