Liz Ann Sonders Says There is No Stock Bubble; Comments on Yellen
Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., David Zervos, chief market strategist at Jeffries, and Michael Hanson, senior U. S. economist at Bank of America discussed the Yellen Fed and her possible impact on the U.S. stock and bond markets. They spoke with Trish Regan and Adam Johnson on Bloomberg Television’s “Street Smart.”
Hanson doesn’t see a risk of inflation exceeding the Fed’s 2% target range as its been stuck around one percent. Until the Fed sees 2.5 to 3 percent GDP growth they are going to be cautious pulling back on accommodation, Hanson added.
Sonders discounted the notion that the market was on a “sugar high” from Fed stimulus. She said earnings were improving, the market was climbing a “wall of worry,” along with sentiment and technicals supporting the move.
Zervos said Bernanke and Yellen would never let deflation into the economy so the only risk investors need to hedge is inflation. The idea that we will get out of “the greatest monetary experiment in history” without making a mistake is the challenge for investors, according to Zervos.
Hanson said there won’t be a fiscal drag on next year’s economic growth which amounted to $200 billion in 2013 and cut growth by one percent by some estimates. This, along with other factors as mentioned by Hanson, should support higher economic growth next year.
Sonders commented at length on the housing market and the impact of “real” mortgage interest rates. Sonders continues to expect the trend of improving housing prices to be supported by fundamental improvements while giving consideration to local market trends.
Sonders is neutral on financials with regional banks looking better in her view.
According to Sonders we’re not in a stock bubble. Regarding Shiller’s CAPE, she said there are some faults to it. Sonders said with stocks trading at their mean PE, in a bull market they tend to blow through this to the upside.
For 2014, Sonders expects 9 percent earnings growth (S&P 500 earnings of $120) with inflation remaining low which could lead to a 17 PE. This would put the S&P 500 over 2,000. Sonders sees risk in a stock market melt-up which could end badly.
Back in April, Sonders scoffed at demographic concerns [link].