Chuck's Mrs. Market Maven: Liz Ann Sonders







A regular guest and guest host on CNBC, Bloomberg TV & Radio, CNN, Fox Business News, and PBS NewsHour as well as named one of the “25 Most Powerful Women in Finance” by American Banker, one of the “Top 50 Women in Wealth” by Wealth Magazine, and twice named one of the “100 Most Influential Women in Finance” by Barron’s Magazine, Liz Ann Sonders has a resume that’s impressive by any measure. She’s worked with industry giants like Marty Zweig and Charles Schwab and has made a name for herself as an investment strategist capable of breaking down complicated and confusing concepts into simple, easy-to-understand takeaways. In this episode of the FEG Insight Bridge, Greg and Liz Ann discuss her storied career, her take on the current markets, and her thoughts on the Fed, the infrastructure plan, and taxes.


0:30 Episode Intro

1:27 Liz Ann's Background

3:38 Lessons Learned from Marty Zweig, Charles Schwab, and Others

5:37 Advice for Young Women Who Want to Break Into Finance

7:51 Liz Ann’s View on the Economy

16:19 Three Things Investors Should be Looking Out For This Fall

19:22 Liz Ann’s Take on Taxes, Infrastructure, and Valuations

30:02 The Rise of the Retail Investor

34:41 Informational Resource Recommendations

37:52 How Liz Ann’s Approach Differs from Other Strategists

41:11 Lightning Round


Liz Ann Sonders

Managing Director and Chief Investment Strategist, Charles Schwab

As Chief Investment Strategist at Charles Schwab, Liz Ann has a range of investment strategy responsibilities reaching from market and economic analysis to investor education, all focused on the individual investor. She analyzes and interprets the economy and markets on behalf of Schwab’s clients. The output of Liz Ann’s work is via written reports, audio and video recordings, conference calls, and webcasts. She is a regular contributor to Schwab’s publications and the keynote speaker at many of the company’s corporate and client events, as well as a keynote speaker at many outside conferences. In 1999, Liz Ann joined U.S. Trust—which was acquired by Schwab in 2000—as a Managing Director and member of its Investment Policy Committee. Before U.S. Trust, Liz Ann was a Managing Director and Senior Portfolio Manager at Avatar Associates (1986-1999), an original division of the Zweig/Avatar Group. She is a regular guest and guest host on many CNBC programs, as well as on Bloomberg TV & Radio, CNN, Fox Business News, PBS NewsHour, and Yahoo! Finance. She was a regular panelist and guest host on PBS’s original Wall $treet Week With Louis Rukeyser. Liz Ann is also regularly quoted in financial publications including The Wall Street Journal, The New York Times, Barron’s, Financial Times, MarketWatch and Associated Press articles. Liz Ann has been named one of SmartMoney’s “Power 30,” their list of the most influential people on Wall Street; the best strategist of the year by Kiplinger’s; one of the “25 Most Powerful Women in Finance” by American Banker/US Banker; one of the “50 Top Women in Wealth” by Wealth Manager/AdvisorOne; and, for the third year in a row, named to the “IA 25” by Investment Advisor, their list of the 25 most important people in and around the financial advisory profession. She was named twice in its first two years to Barron’s Magazine “100 Most Influential Women in Finance” list, honoring women’s leadership, influence within their sector, and their capacity to shape their business or the industry in the future. In 2005, Liz Ann was appointed to and served on the President’s Advisory Panel on Federal Tax Reform, President Bush’s bi-partisan tax reform commission. In 2008 Liz Ann was honored by the Girl Scouts of New York as an “Exceptional Role Model for Young Women.” From 2007 through 2019 Liz Ann served on the national and CT chapter boards of directors for the Make-A-Wish Foundation. In 2020, she joined the board of trustees of the Nantucket Boys & Girls Club. Liz Ann received her B.A. in economics and political science from the University of Delaware, and has served on its Investment Visiting Committee since 2000. In 2013 Liz Ann was inducted onto the University’s “Alumni Wall of Fame” and gave the Winter Commencement Address in 2014 for which she received an honorary doctorate degree. She received her M.B.A. in finance from Fordham University’s Gabelli School of Business.


Greg Dowling

Chief Investment Officer, Head of Research, FEG

Greg Dowling is Chief Investment Officer and Head of Research at FEG. Greg joined FEG in 2004 and focuses on managing the day-to-day activities of the Research department. Greg chairs the Firm’s Investment Policy Committee, which approves all manager recommendations and provides oversight on strategic asset allocations and capital market assumptions. He also is a member of the firm’s Leadership Team and Risk Committee.


Greg Dowling (00:06):

Welcome to the FEG Insight Bridge. This is Greg Dowling, head of research and CIO at FEG. This show spans global markets and institutional investments through conversations with some of the world's leading investment, economic, and philanthropic minds to provide insight on how institutional investors can survive and even thrive in the world of markets and finance.

Greg Dowling (00:30):

Today on the FEG Insight Bridge, we hear directly from Liz Ann Sonders, Charles Schwab's chief investment strategist. Because of her no-nonsense, easy-to-understand, and straightforward talk on markets and economics, it is not hard to understand why she is a frequent media guest on CNBC, Bloomberg TV, Fox Business, The Wall Street Journal, and Barron's. She has also been named to Smart Money's Power 30, the Best Strategist of the Year by Kiplinger, and recently to Barron's 100 Most Influential Women in Finance list. On today's podcast, you will hear about her upbringing, the rise of the retail investor, market valuations, the Fed, how we can get more young women into the investment industry, and even what her favorite French fries are.

Greg Dowling (01:19):

All right, big FEG welcome to Liz Ann Sonders. Thanks for being here today.

Liz Ann Sonders (01:24):

Oh, my pleasure. Thanks for having me, Greg.

Greg Dowling (01:27):

Before we talk current markets, we wanted to get a little bit into your background. If I understand correctly, you were the first in your family to finish college, and you go from there to being this market maven. So take us from point A to point B. How did you get interested in investing and how are you on TV all the time?

Liz Ann Sonders (01:44):

Investing, I'd say, was not a predetermined path in my own head. I effectively had a double major in political science and economics in college, and one of the first economics classes I took required daily reading of The Wall Street Journal, which is now one of my Bibles but at the time wasn't terribly interesting. I got a hint from a college friend's father who had been an avid watcher of the great show Wall Street Week with Louis Rukeyser and said, "If you ever just want a quick summary of what happened during the week and you didn't get a chance to pour through the papers, watch that show on Friday night." So I would watch it every once in a while, and I found that I was fascinated with a lot of what was discussed on that show.

Liz Ann Sonders (02:29):

When I graduated undergrad, I still had no idea what I wanted to do other than knowing I wanted to work and live in New York City. I was a Brooklyn-born girl. My parents were first-generation Americans from Norway, they were born and raised in Brooklyn. So I had a New York background, I wanted to be in New York City. I interviewed across a spectrum of industries, but something connected at this company Zweig/Avatar. I did research on the founders, including Marty Zweig, just a maven himself in the 70s, 80s, and 90s. He was actually part of Wall Street Week.

Liz Ann Sonders (02:59):

I kind of grew up in the business, went to graduate school at night, and toward the mid to late 90s was when the TV stuff started. I was invited to be on a call-in show on CNBC and I was a nervous wreck. The day after that, I got a call from the producer of Wall Street Week asking me to come on as a guest. And then I became a regular panelist. Then it sort of took off from there. I left Zweig/Avatar in '99, joined U.S. Trust. Less than 10 months later, Schwab acquired U.S. Trust, and I was fairly quickly, as I like to say, adopted by the parent company, where I've been ever since. So that's 35 years in 3 minutes.

Greg Dowling (03:37):

That's pretty good. So you mentioned Marty Zweig, and you obviously rubbed shoulders with Charles Schwab himself. Maybe things you've learned from each of them and maybe other mentors along the way.

Liz Ann Sonders (03:46):

Marty was generically considered a market timer, but not from a trading perspective. He started one of the first ever hedge funds, Zweig-DiMenna Partners, which still exists, wrote the best-selling newsletter of all time, The Zweig Forecast, wrote several best-selling books, and he took very much a macro approach to gauging where we were in the market cycle. Looking at monetary policy, he coined the phrase, "Don't fight the Fed." He created the put-call ratio. So a big believer in sentiment and the behavioral side and how that comes into play at major market inflection points. He was really famous for literally calling the crash the Friday night before the crash, and laid out exactly what would happen in--

Greg Dowling (04:31):

The crash of '87.

Liz Ann Sonders (04:34):

The crash of '87, yes. It was really quite remarkable. You can find it on YouTube. It's a fascinating few-minute interview to watch because of how prescient it was. And then frankly, when I joined the show Wall Street Week, Lou Rukeyser became a bit of a mentor. In fact, one of the first things he ever said to me has just stuck with me from that point. He asked whether my parents were financial people. I said, "No, far from it." He said, "Okay, when you come out here in 10 minutes to do the interview with me, get them to understand what you're talking about." I took that to heart and it's always in the back of my mind any time I speak or write.

Liz Ann Sonders (05:09):

And then Chuck Schwab, of course. They happen to be men. I've had lovely women in my life that have been inspirational--not least being my mom--but I've just had exposure to these incredible icons. I also had the great pleasure for the first time of playing golf with Chuck two days ago, which was quite nerve-wracking, at least the first couple of holes, because he is a phenomenal golfer. But we ended up having an absolute blast. He's really just a prince among men to work for.

Greg Dowling (05:37):

You are one of the higher profile investment strategists out there, which also makes you one of the highest-profile female strategists out there. You mentioned all these men in your life, so for my high-school daughter, who's very interested in the market, what advice would you have for her and other young women out there who want to get in the industry?

Liz Ann Sonders (05:56):

First of all, I think being a woman in the broader industry of financial services, however you define it--even a woman on Wall Street, as we say, generically, which typically doesn't just refer to the street of Wall Street in Manhattan, but more of the traditional world of investment banking firms--I've always thought being a woman was an advantage. Even back in 1986 when I started in the business, which was truly an era biased by men. There was quite a bit of hyperbole and exaggeration, but the movie Wall Street, the original one with Michael Douglas and Charlie Sheen, was that era. And I think, again, with some exaggeration, it did to some degree depict what Wall Street was then. I think being a woman, number one, it's a differentiator. Certainly back when I started 35 years ago, and especially today.

Liz Ann Sonders (06:45):

And it's not just because firms are really focused on making sure there's diversity across genders and across race. But I think that women bring something into the world of financial services that--and this is generalizing--that maybe give us a little bit of an edge, less of a gambling mentality, maybe a little bit more intuition. Also the fact that more than half the wealth in the United States is controlled by women, and that is going to be reflected in the makeup of financial services broadly. That more than half is growing to probably two thirds within the next couple of decades. So I think the opportunities have never been greater for women. The last thing I'd say is I can't tell you how many young people say, "Boy, I'd love to do something like you do, but I was never good at math." I was never good at math either. I use very little math in what I do. If anything, a psychology degree probably is more relevant to the kind of work I do than a math degree or a statistics degree.

Greg Dowling (07:50):

I love that. Great advice. All right, well, let's switch gears and actually talk about the markets, which you spend all of your waking hours doing. As we exit the summer doldrums and we get here into the fall season, what is your view on the economy? Are we in the early cycle, mid-cycle, late cycle? Where are we?

Liz Ann Sonders (08:07):

You know, where we are in the cycle, to me, is yet to be decided, because although we have the official dating of the pandemic recession by the MBER as having only been two months--starting in February, ending in April--what we really don't know, and probably won't for a while, is whether that truly started a brand new cycle or whether we'll look back and see that as a break in an ongoing cycle. That would help define--if we knew the answer to that--where we are in this cycle, whatever it is. Whether it's late cycle... I would say there are a lot of facets of where we are that suggest later in the cycle, not least being that we're moving away from very easy monetary policy to something resembling tighter monetary policy.

Liz Ann Sonders (08:57):

It's not going to be a need for the Fed to step in dramatically and start ramping up interest rates--obviously they'll start with the balance sheet. But that would suggest we're later in the cycle. The peak in earnings growth rate, that is very much in the rearview mirror. I think second quarter was the peak in the earnings growth rate and possibly the peak in the growth rate for the economy. As it relates to COVID and the Delta variant, there's no question it's causing some hiccups in the data, especially in states where the variant has seen its greatest surge. So you've seen a rollover in the kind of statistics that I think are relevant in this unique period of time, like TSA traveler throughput, and restaurant reservations, and box office receipts, and other mobility-type data. That's not sinking significantly at the national level, but definitely in those areas.

Liz Ann Sonders (09:46):

We're not going to go full into lockdown mode. At least in my opinion we're not going to, but that doesn't mean human beings won't make decisions about their own activities given what's happening with the virus. But even before the emergence of the Delta variant, our view was that we were in the midst of a shift in the economy away from the goods side of the economy being the big driver. And that's what we saw even during the worst part of the pandemic, high demand for goods, automobiles, housing, everything housing-related, electronics. And that demand was met.

Liz Ann Sonders (10:21):

Then when we opened the economy back up, the demand shifted to services. So we've already seen a bit of a faltering in some of the goods-related economic data. The rub, of course, is that we were going to see an offset because of the surge in services demand, but that's where the Delta variant comes in and maybe at least knocks a level off of that. So I don't think we're sinking like a stone, but I think the best is behind us in terms of the growth rate.

Greg Dowling (10:49):

With that said, there's been a lot of rotation. During the pandemic we had the work-from-home surge and all those stocks soared, and then we got the vaccines out and we had the reopening trade. And so all of those--a lot of the cyclicals, a lot of financials--they rallied. They've kind of softened a little bit with the Delta variant. So when we think about these rotations going on value, growth, where should investors be right now?

Liz Ann Sonders (11:13):

I'm glad you asked that question because I think looking under the surface of where leadership has been within, say an index like the S&P 500, or even looking more broadly at other indexes, including NASDAQ and small caps, that has shown the connectivity between the market and what's going on in the economy, what's going on with the pandemic. If you simply look at the closing price on any day, week, or month of the S&P, it's confounding to a lot of people, because we just sort of continually march to new highs when we have much more volatility in the data and the virus.

Liz Ann Sonders (11:46):

But just peeling one layer of the onion back and looking at those rotational phases, the highly concentrated leadership of just the big five for the first five and a half, six months of the move off the March bottom. And then you had that move, as you said, into cyclicals and value. The reopening, at least initially, was driven by the vaccine. Then you had the actual potential for reopening. You went into the lower-quality phase, which often happens when you start pricing in a really significant pickup in growth, because that's where the leverage is greatest. The companies that have no earnings, that have weaker balance sheets, that's where, in relative terms, you get the bigger pot.

Liz Ann Sonders (12:24):

Now I think we're in more of a traditionally defensive market. So a year ago, defensives were the big five. They were the Apple, Microsoft, Amazon, Google, Facebook. The ecosystem in which we were all living when we couldn't live in any other ecosystem because everything was shut down. Lately, the move into defensives has been in those more typical defensives, utilities and consumer staples, and that's natural given the market pricing in a rolling over in the growth rate, not into recession, but a less robust pace of growth.

Liz Ann Sonders (13:01):

But under the surface, one additional layer deep in the onion, there's a quality theme that has developed, regardless of whether you're looking in value indices or growth indices. If you look at a variety of value factors, whether it's price-to-book, price-to-sale, free cashflow yield, it's the higher-quality-oriented ones--free cashflow yield being an example--stocks that screen well on that are doing better than those that screen on maybe more traditional value factors. Even if you look in the growthier parts of the market--earnings revisions, actual realized growth--those factors are outperforming historical growth. So there's a quality theme to what's working right now, and that's what I would say investors should focus on, is overarching quality.

Greg Dowling (13:50):

Doesn't quality tend to work kind of mid-cycle? Does that say we're more mid-cycle than late cycle?

Liz Ann Sonders (13:53):

Well, it depends on how you define quality. What I think is unique about this period of time is just how big a driver performance factors are. And factors should be differentiated from style indexes or even sectors. An example is we have an underperform rating on utilities right now. Utilities dominate the value indexes. They practically don't exist in the growth indexes, whether it's S&P growth, Russell 1000 growth, Russell 2000 growth, they live in the value indexes. But they're really expensive. That doesn't mean they're growth stocks, it just means they're expensive value stocks. So to just generically say, "I like value here." Well, what do you mean? Do you like the factor of value or do you say, "I like value," and just put blinders on and buy one of the value indexes.

Liz Ann Sonders (14:43):

And if that's your view, huge differences between, say, Russell 1000 value and Russell 2000 value, huge. Including financials being almost 30% of small cap value. So you better have a call on financials if you're going to just say value or even small cap value. I just think there needs to be a more nuanced conversation and more than maybe any other time, factor leadership is dominating anything at the style level and anything at the sector level. So I wouldn't worry about picking the right sector or picking growth versus value, focus on the individual factors with an overarching theme of quality.

Greg Dowling (15:24):

I think that's a great point. We need to get beyond labels. Some would use value, someone might look at price-to-book, someone might like price-to-sales or price-to-earnings.

Liz Ann Sonders (15:34):

You can find value in growth indexes. In 2002, in October of '02, if you were a deep value investor you wanted to go into the beaten-down tech stocks. The real companies, not the nonsensical stuff from '99, 2000. But if you were a deep value investor, that's what you wanted to buy. You didn't want to buy the utilities because they were in the value. You found value in the stocks that were in the growth index.

Greg Dowling (16:00):

Microsoft failed out at those levels. You could have bought it as a value.

Liz Ann Sonders (16:03):

That's right. Even if it wasn't moved into the value indexes, that's where value was.

Greg Dowling (16:08):

That's a great point. We often say like, "Hey, I'm going to diversify my portfolio and I'm going to put this label and that factor here," and we probably need to go one step further and kind of understand how people are doing it. Another thing maybe that might be helpful for investors out there--in the fall, as we always do every fall, there is a pretty busy calendar. We've got an infrastructure bill, we have a debt ceiling, we have the Fed, we have a bunch of things we don't even know about yet. So what are the one or two things, say three things that investors should really be focused on and watching this fall?

Liz Ann Sonders (16:42):

Not to mention just the seasonality of September being the worst month of the year historically. A lot of people think October is because of some pretty high-profile horrific things that have happened in October--as we already talked about, the crash of '87, and a lot of what happened in 2008 was concentrated in October. But there is an amazing tendency for things to come out of the blue that sort of shock the system in that September, October time period. That doesn't mean you should brace for something happening and try to adjust a portfolio in anticipation of that, but just be mindful that there are some risks out there. I think, at this stage in the cycle, there are monetary policy risks. There's the risk that inflation is not quite transitory and the Fed is then viewed as getting behind the curve and the bond vigilantes come back out of the woodwork.

Liz Ann Sonders (17:31):

The opposite could be the case. The Fed could plow ahead with tapering plans and starting to discuss raising interest rates. And if the economy is actually really rolling over here, then the Fed might be in the process of making a monetary policy mistake, tightening too fast too quickly. So there's always the Fed issue that comes into play. Earnings have dramatically beaten expectations every quarter since the pandemic erupted. It could be the case that the bar is still set low in the third quarter, but that's not going to last in perpetuity. So I think that's later in the cycle, that's more of an October story when earnings for the third quarter start to get reported. And then we have to keep COVID in the mix as a potential risk factor, either the Delta variant or another variant, vaccine resistancy on the part of a variant.

Liz Ann Sonders (18:23):

Those would be top of mind. I think the policy stuff out of Washington... We think that process is going to take maybe a little bit longer, that this isn't really a September, October story where everything's going to be ink on paper on an actual bill. We think the sausage-making to get anything close to the $3.5 trillion package is going to take a while and be pretty bumpy road. For now that package is not a bill. It's not even written in legislative language. So we have a few steps to go in that process before we have to start to think about, "Okay, where are taxes going? What does that mean for me?" We also don't think that there's a high likelihood of retroactivity. It's probably more of a 2022 story.

Greg Dowling (19:08):

At one point you were an appointee to the President's Advisory Panel on Federal Tax Reform.

Liz Ann Sonders (19:13):

Sixteen years ago, 2005. Yes, yes.

Greg Dowling (19:18):

You at least got to see how the sausage was made and how opinions are shared. You made a comment, you think it's going to not be retroactive. So maybe just a little bit more on taxes and capital gains. And then I also want to ask you: if you were in charge, where should they be? What's the right levels?

Liz Ann Sonders (19:31):

You know, I'd love taxes to be zero, but that's unrealistic, so.

Greg Dowling (19:36):

[laughs] I'd vote for it if you ran.

Liz Ann Sonders (19:38):

I mean, I actually personally believe in dramatically simplifying the tax code, whether it's flat tax. I think it's the complication that has complicated things more so than any particular level being too high or too low. And I think we have to stop trying to engineer social policy via the tax code. I think the tax code should be a function of raising revenue in order to fund the government for what it needs to do. But I'll get off my soapbox on that piece of it. My colleague, Mike Townsend, who's our man in Washington, this is what he lives, eats, and breathes every day. And we spend a lot of time discussing this now. It is his very seasoned view that believes that retroactivity is not 0% chance, but maybe less likely than what is being discussed right now.

Liz Ann Sonders (20:28):

It's just uncommon for tax hikes to be retroactive. It's more common for tax cuts to be retroactive. Our view is that the capital gains tax is not going up anywhere near the 43% or so which is all in what's in the initial proposal. Maybe 28 at the top end. Same with the corporate tax rate. Maybe it goes up to about 25. What's interesting is if you look at market behavior around capital gains tax increases historically, there's no common theme, nor is there any significant weakness.

Liz Ann Sonders (21:06):

I had people come back at me in this and say, "Well, I'm guessing you're just looking at the point once cap gains tax take effect, a hike takes effect, looking forward. We know it's coming, so you've got to look at the market from the lead-in," to which I always say, "Well, of course I have." And if you look at the year lead-in, at the six-months lead-in, the six months after, a year after, a one-year span around, a two-year span around, you do see some churn and some weakness in stocks that have had big upside appreciation because of selling in anticipation of... But then you tend to see a pickup in other names in the aftermath of the passage of a tax hike.

Liz Ann Sonders (21:46):

So the net is that it kind of washes itself out. Not to mention the fact that there are always other things going on in the market than just where tax rates are. I don't worry so much about a stock market calamity in a broad sense, but there are definitely things that investors are going to have to do from a planning perspective as we approach the date that it takes into effect. And there's no cookie cutter answer to, "What do you do?" That's a function of the makeup of your portfolio and what types of stocks you own and your tax bracket, etc.

Greg Dowling (22:18):

It'll be interesting, right? Because you have these counterbalances where you're going to have a lot of fiscal going into the economy, monetary is going to be maybe tightening, and you might have higher taxes. And hopefully the economy is re-emerging globally, not just here in the states.

Liz Ann Sonders (22:30):


Greg Dowling (22:31):

You have a hard job.

Liz Ann Sonders (22:32):

The one thing I'd say about the fiscal stimulus associated with whatever passes in terms of infrastructure is it's very different than the fiscal stimulus of the past year. It is not immediate direct checks into the hands of households. It's not immediate direct relief for businesses. It's spread out over a decade-long period of time. So we just have to think of it a bit differently than what fiscal stimulus has looked like in the past year.

Greg Dowling (22:57):

And tax acts are immediate.

Liz Ann Sonders (22:59):

Tax acts are immediate, yes.

Greg Dowling (23:01):

And that's phased in over 8 to 10 years.

Liz Ann Sonders (23:03):

That's the difference.

Greg Dowling (23:04):

So let's talk about infrastructure--both physical and human. We don't know exactly, on the human side, how much is going to go through or what form that's going to take yet. We'll have a better sense later this fall. Who does that help? I mean, especially on the physical side. Does that help small caps versus large caps? Does it have any impact at all that investors should be aware of?

Liz Ann Sonders (23:23):

I think it is very treacherous to trade or invest at the stock level, at the sector level, or at the cap level based on--certainly prospective policy, let alone policy that we know is going to be or can assume is going to be enacted. It goes back to, there are so many other forces that come into play, not least being a lot of anticipatory trading in advance of something happening. Some examples that I give about that is, you know, in 2016 when Trump was elected, it was obviously a bit of a surprise. There was not months of anticipation. And then there was the immediacy of talking about cutting the corporate tax rate, more of an embracing of traditional energy, and less regulations specific to certainly sectors like financials. The play, the bet would have been, "Energy will do well, traditional energy, financials." So many things were the complete opposite of what the bets would have seemed to be obvious at the start of that four years.

Liz Ann Sonders (24:31):

And conversely, in the beginning of the Biden administration energy was actually the best-performing sector. So just be really careful about saying, "Oh, infrastructure, it's going to be about building bridges and roads. And who are the biggest players? Let's load up on that." As if that's going to be kind of a permanent leadership area. It's never as easy as that. I happen to believe, bigger-picture, that we are moving into an environment where the U.S. economy is going to be more investment-driven and less discretionary consumption-driven. Right now, consumer spending is more than 70% of GDP. I think that's going to start to give way--not collapse, but start to give way to the investment side of the economy. Residential investment has already been fairly strong, but I think non-residential investment--which is business capbacks--especially in high-tech areas, and then the government spending piece of it on infrastructure will be additive to that investment piece of the economy. But it's not just infrastructure, it's education, it's healthcare. I think that's really a game-changer, because I think that's a healthier economy that's growing based on longer-term investment and not solely on short-term discretionary consumption.

Greg Dowling (25:45):

Many people have said over the years, "If you had a copy of tomorrow's Wall Street Journal, you probably still couldn't make any money."

Liz Ann Sonders (25:51):

[laughs] Very true, very true.

Greg Dowling (25:53):

It's very hard to make short-term gains. As we talk about all this stuff, we probably need to talk about valuations. We had Jeremy Grantham on this podcast not too long ago, and he had some serious concerns about valuations and where we're at. So where are you in terms of equity valuations?

Liz Ann Sonders (26:08):

It depends on what metric you're talking about. I keep an ongoing tally of about a dozen valuation metrics. We have them heat map coded. So if they're on the very expensive end of the spectrum, it's in the red zone, the cheap end of the spectrum, it's in the green zone. I always say that at any point in time, I could find the biggest bear in the room and the biggest pool in the room and probably almost all the time be able to hand each one of them evaluation metrics that they can put on a sign and hold up and say, "See the market's cheap," or, "See the market's expensive." Metrics like Shiller's cyclically adjusted PE, a pure 10-year look-back. The only time we've been more expensive in the history of that data is circa 2000. The so-called Buffet model--total market cap of the entire stock market divided by GDP--that's off the charts.

Liz Ann Sonders (26:58):

But then you've got equity risk screenings relative to either treasuries or relative to even corporate bond yields, and those suggest that the stock market is actually on the less expensive end of the spectrum. There used to be another yield-oriented valuation indicator, the real earnings yield, which is the inverse of the PE ratio but adjusted for inflation. That had been on the list of indicators that suggested the market was pretty cheap until we got the inflation spike that we did. So now we're subtracting a bigger number and that took the real earnings yield into pretty deep negative territory. But let's talk about your traditional PE ratio. Trailing still looks fairly rich because we still have backward weak earnings from the pandemic era. The forward PE, just in the last 6 months, has come from about 27 down to 21 because of the power of the denominator, the massive surge in the E.

Liz Ann Sonders (27:49):

And that's, by the way, a really important differentiator versus what was going on into the peak in 2000. When we hit a forward PE of 27, that was driven by prices rising faster than earnings. Earnings were rising, it's just prices were rising faster than earnings. Earnings were actually about to peak. The spike to 27 this time came because of the collapse in earnings last year. But it was a very short-lived flap, and we've been on this massive acceleration since then. So we have the E doing much more of the heavy lifting and has had the effect of bringing the forward PE down. I think it really depends on what metric you're looking at.

Liz Ann Sonders (28:24):

But maybe most important: valuation shouldn't be seen as a market timing tool. It doesn't tell you anything about what the stock market's going to do in the next year. There's no correlation at all. Looking out 10 years. Yes, big difference. It's also a sentiment indicator, or maybe an indicator of sentiment. We think evaluation as sort of this fundamental thing because there's quantifiable components, but there are times like 2000 where investors were willing to pay nosebleed valuations for stocks that had no earnings, had no prospects for earnings. That's just the sentiment environment we were in. And then when you're in an environment like early '09, you can't give away stock. So a lot of it has to do with sentiment. I often come back to sentiment because I think it's the biggest driver of market cycles, more so than all the fundamentals that we tend to talk about.

Greg Dowling (29:05):

So stocks are expensive, but there's no flashing red lights right now.

Liz Ann Sonders (29:09):

Yeah. I just don't think we have a valuation bubble in the major averages. I think we have a bunch of micro bubbles. I've used that term for a few years now. Many of them this year have been popped or pricked. Now that doesn't mean they don't reflate again, but...

Greg Dowling (29:24):

Things like meme stocks, SPACs...

Liz Ann Sonders (29:26):

Yeah, meme stocks, SPACs, crypto, zombie companies, bankruptcy stocks. We've had 30%, 40%, 50% drawdowns in these areas. And that's another big difference versus the late 90s, is this speculative froth that has been rampant this year has largely been in these non-traditional pockets of the market. There's been less of that froth in the benchmark indexes. That's where you're seeing some of the carnage throughout the course of this year, is outside of the traditional indexes.

Greg Dowling (29:58):

Let's go there with this. Is one part of... You're putting on your Charles Schwab hat. The number of new participants that are sort of newly minted day traders who are signing up for Schwab accounts or Robinhood accounts or whatever accounts they might be signing up for, it's probably a good thing. Like people are getting back into the market.

Liz Ann Sonders (30:14):


Greg Dowling (30:15):

But there's some goofiness that's going on as well. So what's the impact of these new day traders?

Liz Ann Sonders (30:20):

Even before the pandemic, we had been seeing a significant increase in the percentage of new accounts that were opened, brokerage accounts that were opened that skewed younger in terms of demographics. Now, admittedly, a firm like ours tends to attract younger people that are more investment-oriented, not necessarily following the Wall Street Bets forum on Reddit and looking for the get-rich-quick meme stock trade. So the cohort is young investors getting into the market for the first time. That's a very broad brush. You really have to differentiate from the true newly minted day traders that have been the big players in the meme stocks and some of these other areas versus younger investors that I think realize that they have to take ownership of their financial future.

Liz Ann Sonders (31:12):

I think their skepticism about maybe the systems and backstops that were in place in our generation--whether it's traditional pension plans not existing and concerns about whether Social Security is going to be there for them--I think there are these bigger shifts that have attracted the attention of younger investors. And then of course you have what the pandemic fueled: no sports betting, being home and having more free time. I think Schwab may have had something to do with commissions going to zero. I seem to recall we may have been there. And things like fractional shares and just further democratization, all of which are good things.

Liz Ann Sonders (31:51):

That doesn't mean there isn't probably going to be some pain for the crowd that is approaching the market as a get-rich-quick, or stick it to the man, or greater fool theory of, "I'm just going to buy something in the hope that the next person that buys it pays a higher price." I just think that there's a wide chasm in terms of that group of traders to investors. The hope is that we can be part of the process of education and transitioning some of these newly minted, short-term, get-rich-quick day traders into successful long-term investors, but it's probably not going to be without some pain along the way.

Greg Dowling (32:28):

What type of education do you provide? I remember the tech bubble. I remember seeing people like, "I can't believe these people are actually working. I'm just day trading my accounts." You mentioned "I'm making money on this .com and that .com." When that bubble broke, a lot of those people just went into the ether. They just stopped doing it. They lost all their money. So when AMC goes back to zero--or whatever the right valuation is, maybe it's zero--are we going to lose all of these people that we brought into the system? How do we get them on the right track?

Liz Ann Sonders (33:00):

I hope not. In fact, what's interesting about the meme stocks, as an example recently, is this latest surge back up in some of these names has actually not been driven by retail traders. It's been driven by institutions, long/short hedge funds, high-frequency traders that are sort of in on the game of what can happen in the very short term with momentum. And then they've got the algorithms to kind of play it in the short term. So that's already potential good news that we're not seeing the same kind of froth in obviously low-quality names like that. In fact, I just looked at the top 10 list of stocks that are being mentioned on Reddit, and in January and February it was all GameStop, AMC, Blackberry, Clover Health, and all those classic meme stocks. Now it's Tesla, Microsoft, Apple, Nvidia, and Amazon.

Liz Ann Sonders (33:56):

I think it's too soon to say, "Look, they've already shifted toward investing in..." But maybe it's a sign. That doesn't mean, though, that there still can't be an implosion, but maybe it will hurt the high-frequency traders more than newly minted day traders. But our mission has always been about financial literacy and education, and our website has always been attuned to that. We have a whole money-wise section with education tools, and our disclosures--to the annoyance of many people, sometimes even internally--are long and wide and deep and detailed, because we think it's important that people know what they're doing.

Greg Dowling (34:33):

Well that's good. And you guys certainly provide a ton of resources. I do hope you're right, because I think it'd be great to keep these folks still invested and diversified. Do it for a long run. Maybe a little inside baseball here. So you mentioned The Wall Street Journal as being your Bible early on. What can people read, watch, or listen to outside of just Charles Schwab these days?

Liz Ann Sonders (34:53):

I literally, or I should say figuratively, drink from a fire hose of information every single day. It's through a variety of channels. There's the newspaper stuff. I used to be old school with the physical newspapers in my hand, but now it's all online. Every day I'm not fully reading, but I'm looking at Financial Times, Washington Post, New York Times, obviously The Wall Street Journal. There are the website news feeds of MarketWatch and Yahoo Finance and, and all of those. I get a ton of research--admittedly expensive research providers that we are subscribers to--the likes of Ned Davis Research and BCA and [inaudible] and Strategis and ISI and Capital Economics, the list goes on and on and on. But I will say, there's a really efficient way to get reams of information in many cases from people who you typically wouldn't have access to via Twitter.

Liz Ann Sonders (35:53):

I have a love-hate relationship with Twitter. I love the access to information. I love that somebody like Ray Dalio will go on Twitter and post something, where in the past you had to have seven gazillion dollars in Bridgewater to have any idea what he was thinking or saying. Some of the most brilliant minds kind of provide their research via Twitter in one form or another. It's just a great access point for information if you can do what I do, which is weed out the noise and the vitriol and the bullying. I don't engage in any of that, and if somebody decides they want to try to engage me, I've gotten really quick with the block button. Really quick.

Greg Dowling (36:35):

You have to, of course.

Liz Ann Sonders (36:37):

You have to. But I always say, when people say, "How do I see what you're looking at?" See who I'm following on Twitter. There's a celebrity or two every once in a while, and other folks that I follow that are outside, but you can see all the various resources that I follow. It's just an efficient way to get a lot of really good information.

Greg Dowling (36:56):

That's some great advice. We certainly have The Economist, Financial Times, Wall Street Journal, and Bloomberg, but we also have some of those providers too, and they're excellent.

Liz Ann Sonders (37:05):

Bloomberg to me is, I think, one of the best sources of information. I mean, I'm a terminal user, but the news, the information... I think the reporters are brilliant. The global nature of it, how far it spans beyond just what's going on in financial markets on a day-to-day basis. That, I would almost say, is more of my today go-to. If I had to pick one source and that was the only source I could have, I'd be hard-pressed not to pick Bloomberg.

Greg Dowling (37:30):

Those are all great suggestions. And a lot of them, like Yahoo Finance, these are free.

Liz Ann Sonders (37:33):


Greg Dowling (37:33):

I think in the information age, we just have so much information coming our way it's almost important to figure out how to curate that information to have the right information.

Liz Ann Sonders (37:42):


Greg Dowling (37:42):

And those are some great suggestions.

Liz Ann Sonders (37:44):

And the right information for you. The right information for me may be very different than the right information for somebody else. But that just takes some time to figure out.

Greg Dowling (37:52):

So you're a little different than other strategists. You're not on CNBC going, "Tesla, buy right now." You're not saying, "The S&P 500, the level as of Jan 1 is going to be this."

Liz Ann Sonders (38:02):

The year-end price target nonsense. It's complete nonsense. I just don't understand the value of it. And I'm thrilled that all the way up to Chuck, no one has ever said to me, "Hey, Liz Ann, we should start doing this, the year-end price target, which every other strategist does." And that'll be probably the point where I say, "And it's time for me to retire."

Greg Dowling (38:19):

Well, why don't you do that? If everybody else is doing it.

Liz Ann Sonders (38:21):

Well, what's the point? I think the point is just so they can pat themselves on the back or the media can either pat them on the back or give them a hard time for not having nailed the price target. But the price targets change constantly throughout the year. I have no idea where the S&P 500 is going to close at 4:00 PM on December 31. I don't even know if December 31 is a weekday, meaning that the market's even open. I don't know where the market's going to close today at 4:00. To be a successful investor, it's not what you know about something silly like that, it's what you do. It's not what you know about the future. I just don't see the value. Especially at Schwab. We have all individual investors for the most part. I just don't see the value in something like the year-end price targets.

Greg Dowling (39:04):

Someone said, it's important to give them a level just not a date. So you can always go back some point in time and go, "Look, I was right, 10 years." And you don't really have a call on stocks.

Liz Ann Sonders (39:14):

Well we do have tactical recommendations, where we will be overweight one area, say of the equity market, versus others, which are underweight. We're generally neutral right now to the whole overarching global equities, but we have a bias right now to develop international equities. That was a shift we made at the beginning of this year. It's not just spouting the benefits of diversification across asset classes and not having all your eggs in just the U.S. basket, but actually saying we think that as this new cycle is unfolding... We came out of a recession. We came out of a bear market that tends to bring on shifts in broad leadership, and we just felt like opportunities were developed international.

Liz Ann Sonders (39:55):

So yes, we will make subtle tactical shifts, but they're in the context of strategic asset allocation, which we think is of paramount importance. Which is why, when we talk about areas we like, or don't, we're not expressing it in percentage terms. A question that drives me crazy that I often get from the media is, "What percentage of stocks are you telling your investors to have in their portfolio?" Well, who's the investor?

Greg Dowling (40:17):


Liz Ann Sonders (40:18):

Is it a 22-year-old that just inherited $10 million and they don't need the money and they go bungee jumping on the weekends. They're risk-takers and they're not going to freak out at the first 10% drop in their portfolio? Or is the investor 75 years old, has a nest egg, needs to live on the income and can't afford to lose any of the principal? The percentages that I or somebody else might give them are entirely different, even with a singular view on what we think the attractiveness of the equity market is.

Greg Dowling (40:46):

I totally agree. I don't see you on TV going, "You know what, at this level double-down on Amazon." That is not what you do.

Liz Ann Sonders (40:53):


Greg Dowling (40:53):

It's different than other strategists.

Liz Ann Sonders (40:54):

I don't cover any individual stocks, I'm purely big-picture, top-down. I personally directly only own one stock. The symbol is SCHW, and you can look it up and maybe glean why I own it, because I'm partly paid in it. [laughs]

Greg Dowling (41:11):

Yeah, that's great. We'll finish on a few fun questions here. Maybe not fun, but maybe just informative. What's your favorite book on investment?

Liz Ann Sonders (41:18):

Reminiscences of a Stock Operator by Edwin Lefevre.

Greg Dowling (41:21):

That's like Jesse Livermore?

Liz Ann Sonders (41:23):

Yep. That was based off of Jesse Livermore, written in the first person, set in the 1920s. And I think does a better job of explaining in an interesting way what happens when sentiment gets to an extreme in one direction or another. So that's the one I always recommend, especially if people are starting out in the business. That was given to me day one in 1986 by Marty Zweig. In fact, I think the copy that I have up here, which is to the right of the ukulele, that's the copy I got 35 years ago.

Greg Dowling (41:52):

For podcast listeners, many of us in this work from home. And so we can see into her office and she's got all these books and she's got a ukulele and family pictures.

Liz Ann Sonders (42:00):

I've got a fire department helmet from September 11, 2001, that was given to me by a fireman who was just a hero.

Greg Dowling (42:08):

So a lot of interesting tchotchkes in the background that you can't see. But there's also books.

Liz Ann Sonders (42:13):

That mutton up there is named EF Mutton, for older listeners that might remember the reference.

Greg Dowling (42:20):

Since you referenced the ukulele, why is there a ukulele up there?

Liz Ann Sonders (42:24):

I don't play it, but that was signed by Matt Nathanson. He was an entertainer at one of our Schwab events and gave me that ukulele.

Greg Dowling (42:33):

When you're not investing, what are you doing? What are your hobbies?

Liz Ann Sonders (42:36):

I golf, we boat, trail biking, skiing, hanging with my kids. It used to be traveling--not so much for business. although I like traveling for business, but there hasn't been as much traveling. We've taken some really fabulous trips as a family and I'm looking forward to getting back to being able to do that again.

Greg Dowling (42:56):

All right. So when you can travel, where is that next family vacation going to be?

Liz Ann Sonders (43:01):

I tell you, we're hard-pressed not to go back to Africa, which we did five years ago and it was just an epic trip. But have not been to Australia, New Zealand. I would love to go to Scotland and Ireland and play some golf. So those are kind of the top three in the nearish term.

Greg Dowling (43:16):

Oh, that's great. You like to travel. A lot of really active things, trail riding and skiing. What's your favorite guilty pleasure that's not heavy activity?

Liz Ann Sonders (43:26):

Eating French fries. If somebody said, "You could have one food the rest of your life and nothing else," that would be what I would pick. Assuming prepared well, not just any old...

Greg Dowling (43:36):

And what are your favorite French fries?

Liz Ann Sonders (43:38):

I used to say McDonald's, but in the summer I live on the island of Nantucket and there's a phenomenal restaurant--I'm actually going tonight with some friends that are in from out of town--called Lola 41, 41 being the coordinates to where Nantucket is. Their truffle fries are... They come in a giant thing, it's for table-sharing, and I could in one sitting devour the entire thing.

Greg Dowling (44:03):

Oh man. We'll stop it there because maybe I need to go out and get some French fries. You made me hungry.

Liz Ann Sonders (44:08):

Yeah. Your mouth is watering now.

Greg Dowling (44:11):

[laughs] This has been absolutely fantastic. Thanks for this. A lot of great advice and wisdom for your many many years.

Liz Ann Sonders (44:16):

Oh, thank you.

Greg Dowling (44:17):

How many years on Wall Street has it been?

Liz Ann Sonders (44:20):

So it is 35.

Greg Dowling (44:23):

Thirty five years. Thank you so much.

Liz Ann Sonders (44:24):

My pleasure, this was fun. And thanks for going off into fun tangents. It's a treat to be able to talk about French fries and not just the stock market. [laughs]

Greg Dowling (44:35):

If you are interested in more information on the topic, please go to our website where we will have a list of relevant FEG publications. And don't forget to subscribe to our communications at so you don't miss the next episode. Please keep in mind that this information is intended to be general education that needs to be framed within the unique risk and return objectives of each client; therefore, nobody should consider these FEG recommendations. This podcast was prepared by FEG. Neither the information nor any opinion expressed in this podcast constitutes an offer or an invitation to make an offer to buy or sell any securities. The views or opinions expressed by guest speakers are solely their own and do not necessarily represent the views or opinions of FEG.

This was prepared by FEG (also known as Fund Evaluation Group, LLC), a federally registered investment adviser under the Investment Advisers Act of 1940, as amended, providing non-discretionary and discretionary investment advice to its clients on an individual basis. Registration as an investment adviser does not imply a certain level of skill or training. The oral and written communications of an adviser provide you with information about which you determine to hire or retain an adviser. Fund Evaluation Group, LLC, Form ADV Part 2A & 2B can be obtained by written request directly to: Fund Evaluation Group, LLC, 201 East Fifth Street, Suite 1600, Cincinnati, OH 45202, Attention: Compliance Department. Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities. The information herein was obtained from various sources. FEG does not guarantee the accuracy or completeness of such information provided by third parties. The information is given as of the date indicated and believed to be reliable. FEG assumes no obligation to update this information, or to advise on further developments relating to it. Past performance is not an indicator or guarantee of future results. Diversification or Asset Allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss. The views or opinions expressed by guest speakers are solely their own and do not represent the views or opinions of Fund Evaluation Group, LLC.


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