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Ask the investment professionals: 2019 midyear market outlook

Submitted by Marc.Jones on July 17, 2019

Transcript:

Ask the investment professionals: 2019 midyear market outlook 

Is a recession coming?

Liz Ann Sonders, Chief Investment Strategist, Charles Schwab & Co. Inc.:

Well, I can say with 100% certainty that we will get a recession because you always do when the cycle ends. I think trade is probably the most important needle-mover as to the timing of it, but I will say upfront that if we are heading into a recession, I think it already started.

Kathy Jones, Chief Fixed Income Strategist, Schwab Center for Financial Research:
What’s unique about this cycle is we’ve had the yield curve invert, but the Lending Officers’ Survey is not indicating that they’re tightening credit, nor are financial conditions very tight. So we’re getting kind conflicting signals, one from the market and one from the… you know, the broader financial market.  So, right now, I’d be a little bit more on the fence maybe than Liz Ann and say, yeah, I’m sure a recession is coming, but we don’t have all the indicators falling into place that would say it’s imminent.

What does the Fed really want?

Brett Wander, Chief Investment Officer of Fixed Income, Charles Schwab Investment Management, Inc.:
What does the Fed dread more than anything else? A couple of things. Number one, a protracted recession, or worse, deflation, a spiraling economic downturn. They also want to do everything possible to ensure stability in financial markets. And the worst case for them is that there is instability financial market-wise that they’re blamed for. 

The last thing the Fed wants to do is have the market price in one thing and then do something else.  In 80 of the last 80 Fed meetings, the Fed has done exactly what was priced into the marketplace.

How should investors be positioned?

Liz Ann Sonders:
I’ll go back to the latter part of the 2017, when we made… when we did the first of what became a series of changes from a tactical recommendation perspective to reflect our views that we were moving into a later cycle and the risks associated with that. We took US equities down from an overweight to neutral, which basically just means telling our investors to stay at their normal long-term strategic allocation.

Omar Aguilar, Chief Investment Officer of Equities and Multi-Asset Strategies, Charles Schwab Investment Management, Inc.:
This is a good example of opportunity for you to rebalance your strategy because you now have more equities than fixed income most likely because we have had a huge rise in the market. Don’t think that everything should go to risk on assets. We have seen through data that the full risk on market is not yet what it looks like.

Kathy Jones:
One of the things people don’t realize is that if indeed the stock market goes down and goes into a bear market or even a correction, treasuries tend to be your best diversifier. They tend to do well when the stock market goes down, better than all other fixed income asset classes and most other asset classes, period.

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