Charles Schwab's Sonders: Recession Isn't in the Cards, but Volatility Is

The bull market that kicked off in 2009 has more room to run, with little risk of a recession in the year to come. That's according to Charles Schwab's Chief Strategist Liz Ann Sonders, who weighed in on what the markets will look like in the new year in a recent interview with Yahoo Finance. "At this point, barring some shock in the system, it looks at least a couple years off," said Sonders of a potential recession. "We still have a decent runway ahead of us before we have to start to worry about that."

According to the strategist at The Charles Schwab Corporation (SCHW), while 2018 should be another good one for the stock market, investors need to temper any expectations that they will get the same gains of this year with a lack of volatility. "We're getting tighter monetary policy and possibly a bit higher inflation," said Sonders. Traders need to be "mindful in the context of a continued bull market," she said. In a recent interview with Investopedia, Sonders warned that the markets are marching toward the late innings of the cycle. 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.

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What's more, there has been a flattening of the yield curve, productivity boosts and an increase in capital spending, which provide 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.

According to Sonders, one of the risks for 2018 comes from interest rate expectations on the part of investors. Investors expect two interest rate hikes in 2018, and the Fed has signaled three during the new year, but if there are any moves beyond that, it could be trouble, the Schwab executive said, noting that the market has to raise its estimates for rate hikes to be on the same page.

As for bitcoin, the cryptocurrency that is up 1,600% this year, Charles Schwab's strategist said that, if bitcoin is a bubble that bursts, it shouldn't have as much of an impact on the markets as the tech stock crash of 2000 or the housing bubble meltdown of 2007 because cryptocurrency has yet to infiltrate the global financial system or markets broadly. The big question, said Sonders, is the potential psychological impact on the markets if bitcoin were to burst. Unlike competitors TD Ameritrade and TradeStation, Charles Schwab is taking a wait-and-see approach when it comes to offering bitcoin futures from CME Group Inc. (CME) and Cboe World Markets.