Schwab's Liz Ann Sonders puts odds of stimulus at slim to none

Liz Ann Sonders, chief investment strategist at Charles Schwab Corp., does not expect to see Congress produce a much-needed economic stimulus package until some time after the presidential inauguration.

Speaking Wednesday during the Schwab Impact virtual conference, Sonders didn’t completely rule out the passage of a stimulus package between next week’s election and the inauguration in late January, but said, “It looks increasingly unlikely we’ll get a stimulus bill between now and the election, and betting odds say it will be post-inauguration.”

In a rapid-fire question-and-answer format that paired the popular Schwab economic prognosticator with Spotify chief economist Will Page, Sonders offered brief outlooks on everything from value stocks and government debt to unemployment levels and her taste in music.

On the recent stock market pullback that has seen the S&P 500 Index decline more than 4% since Friday, she said there has been “speculative froth among certain cohorts of the market,” and “we needed that excess to reset.”

Sonders said that the stock market is overvalued based strictly on standard price-to-earnings metrics, but added that, “PE is a sentiment indicator more than anything else. Until the last couple of days, I would argue we’re in a momentum-driven market.”

Asked whether she anticipates a double-dip recession, Sonders explained that it isn’t yet clear if the next economic pullback will just be counted as a continuation.

“It will be tricky to decide whether to date and end the first one or just continue this recession,” she said. “I think we have a pretty big risk of seeing economic data falter, particularly in the absence of fiscal stimulus.”

While Sonders didn’t commit to the kind of economic recovery she ultimately anticipates, she said the “pandemic has exposed a widening gap between the haves and have-nots,” including the fact that “those at the upper echelon from an income perspective have more flexibility to work from home.”

On the perennial matter of whether value will eventually take the lead from growth stocks, Sonders said the answer is not as simple as yes or no.

She challenged the definition of value stocks, and whether it refers to broad indexes and which of the three major value indexes.

“The factor of value I think is already starting to come into play,” Sonders said. “If you look at the market since the recent peak, the value stocks have been performing. And the factor of growth is still important but with a quality filter.”

Ultimately, she added, “Don’t just blindly allocate to one of the three value indexes, and if you do that, understand the differences.”

On her musical preferences, Sonders said, “I’m a rock chick,” and gave a nod toward “Stairway to Heaven” by Led Zeppelin and “Give Me Shelter” by the Rolling Stones, from which she drew parallels to the current reality of living in a pandemic.

“The main refrain of that song is, 'It’s just a shot away,'” she said. “What a great line as we think about vaccines.”