Liz Ann Sonders: Time to Move Beyond Stocks and Bonds

 Commentary  December 07, 2021 at 07:44 AM  Share & Print

Ask anyone in finance about “Liz Ann” and they know who you’re referring to. She’s Liz Ann Sonders, the chief investment strategist at Charles Schwab, who has been tracking, analyzing and commenting on financial markets from that perch for almost 22 years, always with the focus of the individual investor in mind.

Sonders is regularly included in Investment Advisor’s IA25 list of the 25 most important people for the financial advisory community, and she has been named to Barron’s 100 Most Influential Women in Finance list and celebrated as Best Market Strategist by Kiplinger’s Personal Finance.

We asked her to participate in our new series in which we ask well-known personalities in the financial industry 10 questions related to financial markets, work and after-work activities.

Sonders, who is always analytical, not surprisingly answered with bullet points, clearly making the points she wanted to communicate. We converted those bullets into full sentences.

Here are our questions and her answers:

What market indicator, industry statistic, regulatory change or advisor trend are you watching most closely right now and why?

LIZ ANN SONDERS: The correlation between bond yields and stock prices. For three decades starting late-1960s, correlation was mostly negative; for two decades since then, correlation has been mostly positive.

Renewed/persistent negative correlation could suggest a secular inflationary backdrop; renewed/persistent negative correlation would also mean diversification benefits of bonds vs. stocks would lessen since negative bond yields/stock prices correlation = positive bond returns/stock returns correlation.

How has it been changing recently (2021) and how do you expect it to change (2022)?

Correlation dipped to negative in mid-2021 during early stage of inflation spike, but rebounded back positive. If supply shocks continue to dominate (like during the 1960s-1980s) vs. demand shocks dominating (like 1990s-2010s), a longer-lasting negative bond yields/stock prices correlation could arrive in 2022.

What would you suggest advisors do now or consider doing in the future about it?

Consider a more active approach on the fixed income side of portfolios. Broaden diversification beyond just stocks and bonds, including international and alternatives, and take possibly higher turnover into consideration as per taxes, et. al. Consider adjusting from calendar-based rebalancing to volatility-based rebalancing (e.g., more frequent trimming into strength/adding into weakness) to stay in gear with market and strategic allocations.

Who or what critical source of information do you track, or follow online, to keep up with this or other trends?

Rolling 120-day correlation between S&P 500 and 10-year bond yields. In addition, at this stage in the economic cycle, I keep an eye on the yield curve and inflation expectations. As with most economic data and its relationship to stock market behavior, remember that “better or worse often matters more than good or bad” (i.e., focus at least as much on rate of change and inflection points as on level).

Are you changing any of your work habits at this stage of the pandemic? Why/why not?  

I typically work a much longer day given the absence of a commute or business travel. I start working much earlier in the morning; notably doing my daily “chart fest” on Twitter. Virtual client events are much more frequent and have significantly larger audiences relative to when they were nearly all in person.

What’s your biggest hobby and what was the last event/activity you did related to It?

Biking: weekly/lengthy trail biking all summer on Nantucket; road biking now that I’m back in Naples, FL until next summer. Golfing: I managed to squeeze in nine holes a couple of weekends ago, with scattered visits to the range to work on micro aspects of my game.

How about your latest community/charitable activity/event/cause?

I am a member of the Board of Trustees of the Nantucket Boys & Girls Club and I hosted a large cocktail party/fundraiser at our home on the island toward the end of the summer in conjunction with the subsequent Tim Russert Summer Groove benefiting the club.

What book are you reading now and why?

I’m taking creative license here: listening to the “End Game” series of podcasts hosted by Grant Williams and Bill Fleckenstein about what the future holds in light of the unprecedented monetary/fiscal policy and government debt added to the global economy since the financial crisis in 2008.

Any special holiday plan, activity or focus you’d like to share as we near year-end? Or a New Year’s resolution that you’ve decided on?

As a 100% Norwegian, we do our main celebration the evening of Christmas Eve vs. Christmas Day. However, like last year, our kids (25 and 21) are opting for an “American” Christmas, with gifts being opened Christmas morning vs. after dinner on Christmas Eve. I’m very excited to also have family from Norway coming to visit starting on December 27… hopefully not to be derailed by Omicron!

Any other update/fact about you or piece of advice/wisdom you’d like to share with our advisor audience? 

I have to go with two of my tried-and-true, especially since I regularly get the question from financial media that includes some form of, “Are you telling investors to get in or get out?” Neither “get in” nor “get out” is an investing strategy; that’s just gambling on moments in time. Investing should always be a disciplined process over time! It’s not what we know (about the future) that matters, it’s what we do along the way.


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