Investing Insights 2025: Navigating the New Normal with Liz Ann Sonders

Episode 111 of the Investopedia Express with Caleb Silver (November 7, 2022)

The Dow's four-week rally paused last week amid investor uncertainty over the Federal Reserve's plans for further rate hikes. The FOMC raised the federal funds rate by 0.75% for the fourth consecutive time, signaling a steady commitment to combating inflation. Fed Chair Jerome Powell's comments underscored that no rate cuts or pauses are imminent, with the terminal rate now expected to exceed 5%. This cautious stance cooled market enthusiasm, leading to declines across major indices, though buyer interest remains resilient as we enter the new year.

Investors should temper expectations for a sudden Fed pivot. Historically, rate cuts follow economic crises and deep bear markets, conditions not currently present. Instead, the goal is a balanced interest rate environment that supports sustainable growth without overheating.

Big tech's influence on the S&P 500 has diminished, dropping from over 23% to under 17% amid widespread selling. However, Apple (AAPL) has demonstrated remarkable resilience, outperforming peers like Amazon, Meta, and Alphabet with a modest 8.5% decline over the past year. Over five years, Apple’s shares have surged 220%, cementing its status as a reliable investment favored by institutions and investors alike, including Warren Buffett's Berkshire Hathaway.

Meet Liz Ann Sonders

Liz Ann Sonders serves as Senior Vice President and Chief Investment Strategist at Charles Schwab, overseeing U.S. market analysis and asset allocation strategies for diverse investors. Recognized among Wall Street’s most influential strategists, she is a trusted voice featured on CNBC, Bloomberg, and in leading financial publications. Liz Ann holds a BA in Economics and Political Science from the University of Delaware and an MBA in Finance from Fordham University.

Episode Highlights

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This episode is brought to you in partnership with Charles Schwab, championing independent financial advisors dedicated to prioritizing your financial well-being with trust and fiduciary commitment. Find an advisor near you at findyourindependentadvisor.com.

Investors must adjust their expectations in 2024. The era of guaranteed market returns and easy capital deployment is over. Liz Ann Sonders advises embracing disciplined investing rooted in fundamentals to thrive in the new normal.

At the Schwab Impact Conference, advisors report clients’ concerns center on central bank policies, debt levels, and inflation reminiscent of the 1970s. Despite challenges, opportunities exist for active portfolio management and strategic asset allocation.

Regarding the labor market, early signs like hiring freezes and rising layoff announcements suggest weakening, though headline unemployment figures remain lagging indicators. Companies are reducing hours worked, signaling subtle cracks but not a full-blown collapse.

For retirees, the resurgence of fixed income yields offers a safer haven after years of low returns. The classic 'slow and steady' investment approach regains importance, emphasizing income stability and risk management.

Young investors facing their first bear market should focus on long-term discipline rather than timing the market. Rebalancing portfolios and dollar-cost averaging remain crucial strategies to capitalize on market downturns without succumbing to panic or greed.

Liz Ann highlights key indicators to watch: investor sentiment nearing washout levels, stabilization in the US dollar and bond yields, forward earnings estimates adjusting downward, and housing market stabilization. These signs may signal that the worst economic impacts are behind us.

Her recommended investing term for 2024 is "equal weighted," reflecting a shift from concentrated big-cap tech leadership to broader market participation where fundamentals drive performance.

Term of the Week: Regressive Tax

This week’s term, inspired by Raul from Lisbon, explains why lotteries like Powerball function as regressive taxes. A regressive tax imposes the same dollar amount on all payers regardless of income, disproportionately impacting lower-income individuals. Research shows lower-income groups spend a higher percentage of their earnings on lottery tickets, making it a significant financial burden rather than a fun gamble.

With Powerball jackpots reaching nearly $2 billion and odds of winning at 1 in 292 million, states heavily market these lotteries, effectively taxing those least able to afford it. Understanding this helps investors and consumers make informed decisions about such games of chance.

Thank you, Raul, for the insightful term suggestion!

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