Liz Ann Sonders explains how to invest during a ‘continuing recession’

  • In an interview with Insider, Charles Schwab’s Liz Ann Sonders explained her economic outlook for 2023.
  • The United States is already in the midst of a “continuing recession”, she said.
  • Sonders shared his stock investing strategy, as well as his all-time favorite book.

Charles Schwab’s chief investment strategist, Liz Ann Sonders, doesn’t think a U.S. recession will hit in 2023.

That’s because it’s already happened – but in the form of a “continuing recession”.

In fact, the best-case scenario would be a continuation of this ongoing recession, she explained, because that would mean there is no all-at-once all-time low, unlike 2009 when the economy was in disequilibrium. much more serious.

“When you have certain weak pockets, you have compensating pockets of strength,” Sonders said in an interview with Insider.

Housing, several goods-oriented sectors, consumer confidence, CEO confidence and inverted yield curve have already entered recession territory this year, she said. But there remain strengths, such as household balance sheets and pent-up demand that keep the labor market resilient.

Eventually, the labor market will also turn south, allowing the Fed to bring inflation under control, Sonders predicted. But the central bank should avoid easing monetary policy too soon, and investors should not expect a quick pivot from the Fed.

“I think the Fed is still struggling to get market participants to understand that once they hit the terminal rate, they’re likely to stay there for a while,” Sonders said, noting that the Fed will have to weigh near – the long-term pain in the labor market versus the long-term strength of the economy.

How to invest in stocks in 2023

Sonders said the stock market has undergone several shifts that are likely to continue into next year, the most notable being that fundamentals have rebounded with price and mega-cap tech companies are holding less gravity in indexes.

That being said, investors should focus on “what’s missing,” in a macro sense, she said.

“In other words, we are in an environment of downward earnings revisions, which means forward earnings estimates are down – a factor in the weakening economy,” Sonders explained, adding that investors should look for companies that have positive earnings surprises.

And with the fundamentals back in the foreground, this puts more emphasis on picking individual stocks rather than across sectors.

“I just think right now we’re not in an environment where making one or two sector calls is going to be the way to do well,” she said. “It’s going to be more fundamental-based, and I think that’s actually a positive backdrop, although we’re still in an environment where volatility is likely to persist and bouts of weakness are ongoing, because of this which I think is not yet valued in the market is the continued deterioration in earnings.”

“My favorite book of all time”

Sonders said his “absolute favorite book of all time ‘is the 1923 novel'”Reminiscences of a stock traderby Edwin Lefèvre, a fictional first-person account of a character based on real-life day trader Jesse Livermore.

She said she admires how the book illustrates the importance of psychology as a key driver of markets and how it influences trades more than fundamentals.

“It was the first book I was given when I started in this business in 1986,” she said. “It’s the one I recommend all the time.”

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