One on One with Liz Ann Sonders of Charles Schwab
Wednesday, December 13, 2006
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SUSIE GHARIB: Our guest tonight says the stock market will do well in 2007. She'll also give us her views on that, plus what to expect from the Federal Reserve and the dollar. Joining us now, Liz Ann Sonders, chief investment strategist at Charles Schwab and Company. Hi, Liz Ann.
LIZ ANN SONDERS, CHARLES SCHWAB: Hi, Susie.
GHARIB: Before we get your forecast for 2007, tell us a little bit about your thoughts on the market's post Fed meeting, pretty choppy sluggish day today.
SONDERS: You know, I don't know that the market had much of a reaction specifically to the Fed meeting. I think it's one of those meetings that was very widely expected, both in terms of no change to interest rates and although I think there was a lot of attention given to the addition of the word "substantial," Ben Bernanke's modus operandi is to be somewhat blunt and honest. And clearly the housing downturn has been substantial in nature. So I don't think the addition of that word is that big a deal. I think we're coming into year end. We've seen a huge rally, a lot of liquidity has already come into the market. We may just be kind of in this choppy pattern as we consolidate some of these gains.
GHARIB: So tell us about your outlook for 2007. Are we going to see a dramatic move up?
SONDERS: You know, it's obviously hard to forecast that. I think that, you know, the move we have seen since the summer may be a big chunk of the rally that we're likely to see. We've seen a tremendous amount of liquidity sit behind this rally. It's been private equity liquidity. It's been hedge fund liquidity. It's been foreign central bank and foreign private investor liquidity. I guess the good news is what we haven't yet seen is a lot of U.S.-based individual investors that have yet to come into the market. So that could continue to be some fuel for the market. A lot of corporate cash but on the other side of things we have come very far in a very quick period of time. So I think maybe a period of consolidation is certainly not out of the question.
GHARIB: So how are you factoring in issues like fluctuating oil prices, weak housing, the weak dollar? How does that all of that figure into your forecast for the New Year?
SONDERS: Well, you know, all of those obviously will come into play. I think the weak dollar is probably one of the ones to pay most close attention to as it relates to the state of the economy. I think the one potential risk for 2007 is if you get a combination of a continued weak dollar that maybe goes beyond orderly in nature. If we really started to see some problems with the dollar at the same time the U.S. economy was slowing, then I think it puts the Federal Reserve, the U.S. Federal Reserve in a tough position because it may... They may be in a position to have to cut rates, but they have to be careful about not cutting them too aggressively in the face of a falling dollar. Now I think the risk of those two things happening simultaneously may be very low, but that would be one thing I would be looking for. And then of course short term we have oil prices. Part of the lift for the market for the economy for consumer spending, retail sales which I talked about was the reprieve we got in oil prices. I think we'll all - market watchers, consumers be watching to make sure the trend doesn't reverse itself going into the beginning of the year.
GHARIB: At Charles Schwab, you advise many of your clients who are individual investors. What is your advice for individual investors for what they should do, what should be their strategy for 2007?
SONDERS: At Schwab, one of the things that I think we do that's unique is we do take a very individual approach to our investors because all individual investors are very vast in terms of the differences between their tolerance for risk which is the most important thing to assess. So we have very conservative investors. We have very aggressive investors. But if you just cut it right down the middle for the purposes of this discussion for a moderate investor, in other words not terribly conservative not terribly aggressive, our recommendation is to have about 60 percent in stocks, 45 of which would be domestic, U.S. stocks; 15 would be international stocks, 35 percent in bonds and the remaining 5 percent in cash.
GHARIB: OK, lots to think about. Thank you so much, Liz Ann. I hope you have a nice holiday.
SONDERS: My pleasure. You too.
GHARIB: We've been speaking with Liz Ann Sonders, chief investment strategist at Charles Schwab and Company.
