Liz Ann Sonders: Corporate Earnings Story is Alive

By on April 25, 2012

Liz Ann Sonders - Charles SchwabLiz Ann Sonders, Chief Investment Strategist at Charles Schwab, shared her latest analysis with CNBC’s Becky Quick and guest Governor Jon Huntsman.

Quick asked if the “sell in May” strategy might be moving up into April, to which Sonders replied it might be a little bit.

Sonders explained that following a 30% rally some divergences started to creep in, with sentiment data reaching an elevated level of optimism and with Europe in the headlines, it wasn’t a surprise to experience some consolidation the past several weeks.

Sonders feels it is too soon to tell whether this is the start of the “sell in May.” Sonders said strong earnings are serving as a fundamental prop for the market. Sonders added that we’re not at the mercy of European news like last year because the LTRO eased concerns of the liquidity crisis. Sonders indicated micro-economic support is in place to prevent the correction from becoming severe.

Sonders stated there was “muscle memory” in terms of investors and the market. In mid-2010, mid-2011, and now again 10-year bond yields dipped, but there was no risk of a double-dip recession, but merely a mid-cycle slowdown.

Sonders believes low natural gas prices are here to stay and the U. S. dollar will show strength. Sonders added that unbelievably strong profit margins have been of benefit to corporate earnings.

Sonders said despite concerns of decelerating earnings growth, she doesn’t believe the corporate earnings story is dead. Sonders said there was an 81% beat rate for earnings which was an all-time record. Bears will argue analysts set the bar too low with macro concerns at the end of last year, however, Sonders expects earnings to come in higher than the 5% growth consensus for the 2nd quarter.

The interview continued with Sonders discussing the valuation of the market with regard to earnings multiples, her biggest concerns which could derail her forecast, and a discussion regarding the only sector she recommends being overweight (technology).

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