Charles Schwab Chief Strategist Says Market Entering 'Late Stage'

The stock market has been having a banner year in 2017, but The Charles Schwab Corporation's (SCHW) Chief Strategist Liz Ann Sonders said that while the stock market isn’t doomed to fail next year it is marching toward the late innings of the cycle.

In an interview with Investopedia, Sonders said that the growth in the economy and the stock market, which has been going on for about nine years now, is leading some to think it is doomed to fail soon, but that's not the case. “You don’t die purely of old age,” Sonders told Investopedia. “They die because of excesses. I don’t think we are at a point of excess either in sentiment terms for the market or economic terms for the overall economy.”

Still the Charles Schwab executive said signs that the economy and stock market are in the late stages of the cycle are starting to appear. She pointed to moves on the part of the Federal Reserve to clamp down on its monetary policy and end the stimulus package that it kicked off on the heels of Great Recession as late-stage characteristics. What’s more, there’s been a flattening of the yield curve, productivity boosts and an increase in capital spending, which provides further evidence of a late stage cycle. “We’re starting to check off some of the boxes that suggest we are getting into that late cycle but not many of them yet are suggesting we are near the peak in the cycle,” she said.

Sonders did note that while there is excess optimism on the part of investors and financial advisors who opine about it on Twitter or in blogs, the same can’t be said of investors’ behavior which bodes well for the stock market. If there was extreme optimism both from a sentiment and a behavioral perspective it would be a warning sign for the markets. Looking at inflows of mutual funds and ETFs concentrated in the domestic equity market, there haven’t been net new inflows prior to 2007, she said. “That’s an extraordinary thing to occur in nearly nine years of a bull market and supports this notion that there’s still this bit of wall of worry out there.”

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The comments on the part of Sonders come as investors are increasing their interest in stocks and ETFs. TD Ameritrade, the rival discount broker, said earlier this month that its Investor Movement Index (IMX) increased to 7.4 in October after coming in at 7.14 for September. The index gauges what its customers are buying and selling via their TD Ameritrade accounts and their exposure to the stock market. TD Ameritrade Holding Corporation (AMTD) said that, while customers were net buyers for nine months in a row, it was from September to October that the broker saw the IMX jump close to 4% to reach the second highest reading in the history of the index. The online trading firm said that October was characterized by strong U.S. markets, positive quarterly earnings on behalf of all sorts of companies and a global economy that is strengthening. Taken together, that appeared to influence retail investors' behavior on the positive side.

Meanwhile, Charles Schwab reported that total client assets jumped 21% year over year in October, coming in at a record $3.26 trillion. In a press release announcing monthly activity highlights, the San Francisco-based discount broker said that total client assets in October were up 2% from September. Net new assets came in at $35.4 billion for October, while client assets receiving ongoing advisory services also set a record at $1.64 trillion, up 21% from a year ago and up 2% compared with September.