(Bloomberg) Charles Schwab & Co.’s Liz Ann Sonders has advice for investors akin to what the veteran soldier tells the new recruit in an old war movie: Steady, lad.
When asked whether investors are afraid of this week’s market volatility amid Federal Reserve Chair Jerome Powell’s latest hawkish guidance, she told Bloomberg TV’s Surveillance on Thursday that it depends on the type of investor.
“Some of our newer, younger, more trading-oriented investors are feeling this a little bit more acutely, and the questions are more short term in nature -- when is this going to end? Where?” the firm’s chief investment strategist said. “And it’s not so much just the more-seasoned investors, but investors who have a long-term strategic asset allocation plan. They adhere to the disciplines of diversification and rebalancing. They’re more calm in this environment.”
Sonders says the Fed’s determination to bring under control the fastest inflation in four decades is “the real deal.” That said, higher yields on bonds are “not necessarily” a foregone conclusion because markets don’t always wait for the Fed to react.
The yield on the 10-year Treasury bond is up about 30 basis points since late last month, for example. Most market forecasters anticipate the Fed will begin raising rates in March and continue an increase cycle through the year. The central bank also has started and will continue to trim its bond purchases, a program designed to provide liquidity during the pandemic.
“If you look at the effect of quantitative easing and go back during the financial crisis, what actually happened was a bit of the opposite,” Sonders said. “Where instead of yields coming down while each (QE) round was in place, it was the opposite. That has someting to do with the discounting nature of markets, but also the power of the Fed’s words, the jawboning.”
One thing that shouldn’t surprise investors is continued volatility.
Sonders pointed to “something that Jerome Powell said as far back as December, 2018, which is the distinction between financial-market volatility and financial-system stability. Just because we get financial-market volatility, if it doesn’t threaten financial-system stability, then we’re going to get to (rates) liftoff sooner than what we thought a few months ago.”
