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Liz Ann Sonders on biggest mistake investors can make

Charles Schwab Senior Vice President & Chief Investment Strategist Liz Ann Sonders joins Yahoo Finance’s Akiko Fujita to break down the latest market action as the S&P 500 briefly tops its February closing record.

Video Transcript

AKIKO FUJITA: Let's kick things off today with our first guest for the hour. Liz Ann Sonders is Charles Schwab's senior vice president and chief investment strategist. Liz Ann, it's good to have you on on this Monday. We have seen a number of banks come out with some more bullish notes, especially looking at where the levels are likely to rise with the S&P 500. We had Goldman coming out and saying the 2020 target now is at 3,600. We're talking about a 7% return even with the election uncertainty. How are you looking at the market dynamics at play right now?

LIZ ANN SONDERS: Well, I think the dynamic that's really been the most powerful force behind what the market has done since March, of course, is liquidity, both on the monetary side and the fiscal side. I think there is a risk near-term if Congress can't pass another fiscal package because consumption trends, if you look when we started to see that resurgence in consumption, it was actually a bigger resurgence on the part of the unemployed cohort that was receiving unemployment insurance.

That said, we've got the Fed at our back, I think, as far as the eye can see. So that money supply boost has been significant, and it's resulted in that liquidity, given that the real economy doesn't have demands equivalent to the size of that liquidity, that liquidity finds its way into asset markets. Not just the stock market, but markets across the board. That doesn't mean you can't have a negative catalyst kick in and cause some volatility. And I do worry that sentiment is a little frothy right now. But that liquidity story is still with us for the foreseeable future.

AKIKO FUJITA: To your concerns about sentiment being a little frothy, on the stimulus front, we've got no developments right now. The debate isn't expected to get picked up again over in Washington until September. Yes, we saw retail sales going up, but it wasn't as high as expected. I mean, are we starting to see some of this recovery tail off right now, especially with that additional stimulus, the additional enhanced unemployment benefits now having expired?

LIZ ANN SONDERS: You are-- if you look at some of the ultra high-frequency data that we've all become accustomed to looking at tied to how to judge where we are in the recovery in this environment, some mobility data, search data, and you are seeing a bit of a leveling off, if not a slight rolling over. So I think in particular, as we go back to school, as we sort of navigate that process and see what happens from a virus perspective, I think we are going to see fits and starts in the economy.

And that's very specific, obviously, to-- from an industry to industry standpoint. But I've had the view that, in the aggregate, we're likely to see sort of a series of rolling W's, that this is not going to persist in something looking like a V-shaped recovery. And I think the virus will dictate that. And I think that this fall over the next few weeks will really be key, especially with back to school.

AKIKO FUJITA: Well, yeah, and especially given the warnings about flu season, how that's likely to sort of double up with the virus and the spread that we are seeing right now. Let's talk about positioning right now. You know, it seems like there is some rotation out of tech. I mean, it's not sort of all-in on tech, as we saw. That was sort of the defensive play over the last few months. How are you shifting up your positioning in the face of some of the data that we've gotten and in the face of where you think the market is going right now?

LIZ ANN SONDERS: We haven't been playing any kind of short-term tactical game. We have maintained our sort of positioning, our tactical views, which is actually a bias away from sector and toward factor. I think the factors around quality, quality growth, strong balance sheets, positive cash flow, dominance in industries, management team, those factors have been leadership factors across all 11 sectors. And I think that will continue to define leadership in this environment. We've seen these multiple phases, and we had that first phase, that recovery phase from mid-May until the beginning of June, when there was that hope that we were seeing a strong recovery.

And you saw that leadership shift from just the COVID winners out to the more traditionally cyclical areas. And then to your point, more recently, we seem to have tried that again. We've had some fits and starts of tech profit-taking and a move into industrials, financials. But it's been fleeting so far, and I think the market is sending, rightly so, a mixed message, an uncertain message about what this next stage in the recovery looks like.

AKIKO FUJITA: Yeah, having said that about tech, it does still seem like the real growth story is still intact on that front. I mean, if there's investors right now looking at sort of where the valuations are, thinking maybe it's a bit frothy, is it time to exit, I mean, how should they be looking at that? The growth story is certainly intact, but there's still other opportunities now outside of the sector.

LIZ ANN SONDERS: Now, I would add to this question, if you asked about the broad market in a normal environment, let alone this environment, I think the biggest mistake investors can make is taking an all-or-nothing, you know, get in, get out, exit type approach to investing, whether it's in a stock, in a sector, in the overall market. Investing should never be about a moment in time. That's gambling, and gambling is just that. I think investing should always be a process over time. So as a holder of some of the high-flying tech stocks, there's no need to make the decision when do I exit those positions. You just take a more frequent rebalancing approach. Stay in gear by trimming your winners and maybe adding to areas that have underperformed. It's not terribly sexy, but it's-- you know, it's close as you're going to get to a free lunch.

I really think that what investors miss is it's not our knowledge that matters in terms of what the market is going to do. Nobody can nail that. It's our behavior that matters. And I think behavior is more important than knowledge. And that's just something to always have in the back of your mind.

AKIKO FUJITA: And Liz, finally, we've got the Democratic National Convention kicking off today. Certainly, politics is going to be in focus even more so than it has been. How do you calculate the political risk right now? We've seen the polls tightening. There's concerns about the mail-in votes and what that's going to look like. You know, I mean, how significant is that risk going into November?

LIZ ANN SONDERS: I think the biggest risk associated with the election is not necessarily who wins the White House or what happens to the Senate and the House, is that if there is an actual contested election, if it's a protracted period of time in the aftermath of the election where we don't know the winner. I think that's something that is in the conversation, but I don't think it's really built into expectations. And as we get closer, if it looks like we have a rising chance of a contested election, it's hard to think that that wouldn't be a pretty significant volatility driver.

AKIKO FUJITA: OK, we'll be watching closely. Liz Ann Sonders, always good to talk to you with Charles Schwab. She's the senior vice president and chief investment strategist there.