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Searching for a Silver Lining with Schwab's Liz Ann Sonders

Posted Mar 05, 2009 10:45am EST by Aaron Task in Investing
Related: ^dji, ^gspc, GM, GE, FXI, SPY, DIA
Wednesday's rally is shaping up as another one-hit wonder. Stocks slid early Thursday amid renewed concerns about a possible GM bankruptcy and disappointment over no new stimulus from China.

In recent trading the Dow was down over 2%.

While the market remains very dicey, Liz Ann Sonders, chief investment strategist at Charles Schwab, says there are a few silver linings for investors:

  • The selling has become less indiscriminate: Whereas the September-November timeframe was characterized by "forced selling" due to mass deleveraging and redemptions from both hedge and mutual funds, the current environment is seeing more "fundamentally-based" selling.
  • Healthier technical underpinnings: Although major averages broke the November lows, the number of stocks making new 52-week lows and the level of volatility are down significantly since then. Of the S&P's 10 sectors, eight are actually outperforming in the index this year (industrials and financials being the huge laggards dragging down the index.)
  • Credit unfreeze: "The investment-grade segment of the credit market has generally positively diverged from the stock market at the same time credit issuance is surging," Sonders writes. "We believe, that credit conditions are improving-a notable difference compared to last fall."

Having said that, Sonders isn't making a "we've hit bottom" call and doesn't (ever) recommend investors try to time the market. She also disagrees with the "stocks are cheap" mantra of many, noting it's hard to bet on price-to-earnings valuations when both the "P" and the "E" are declining so rapidly.

Still, she's holding out hope for a 2002-03-type bottom and does not believe P/Es will go into the single-digits as long as we remain in an environment of disinflation.

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