It's Time to 'Back the Truck up' to Buy Stocks Right Now: Strategist

It’s Time to ‘Back the Truck up’ to Buy Stocks Right Now: Strategist

  • This past week’s CPI print of 9.1% is widely being seen as the peak for inflation.
  • Markets are down heavily from all-time highs and many stocks look cheap now.
  • The chief strategist at an $8 trillion firm says it’s time to buy despite economic uncertainty.

This past week’s consumer inflation print of 9.1% is widely being seen as the peak for inflation because the slide in commodity prices could well bring the number down next month.

For many investors, a peak in inflation is seen as the starting gun on a recovery due to the way markets front run events.

The theory goes that as inflation recedes, the


Federal Reserve

will start signaling an easing back on rate hikes, and ultimately if the economy slows to the degree some are forecasting it will have to pivot to rate cuts.

This scenario is far from guaranteed to transpire, but if it is a correct reading of the runes, investors sitting on cash might want to start redeploying it.

Inflation is notoriously hard to forecast though for even the most seasoned economists, and there’s a risk that it could become “sticky” even if it doesn’t go any higher than 9.1%.

For Liz Ann Sonders, chief investment strategist at the $8 trillion stockbroker giant Charles Schwab & Co, inflation looks likely to be slow to return to the distant target of 2%.

“Transport, commodity prices are probably going to start moving down and in some cases they already have, so at this point we can say, overall CPI is likely to be lower next month,” she told Insider. “But there was some of that chatter heading into this month on today’s reading and obviously that didn’t happen”

“The problem is that the shelter component of inflation has been hot too. That may not get much worse from here, but that tends to trend a little bit less volatile. So the likelihood of a major move down in short order is low, just based on how that tends to be a bit stickier.”

Sonders said that given how far off 2% inflation looks right now, she considers it conceivable that Jerome Powell and his Fed colleagues may start signaling they do not need to see it all the way back down to target in order to lift the foot off the pedal-on-hiking. This flexibility could provide the room to stop tightening early enough to achieve a “soft landing” for the economy. Such an occurrence would of course be bullish for stocks.

Complicating the picture at the moment is the fact that payroll numbers continue to be strong. Sonders said that does not necessarily mean there isn’t weakness in the economy. Strong jobs numbers are a lagging indicator with hiring freezes and layoffs taking some time to be fully reflected.

Despite a somewhat bearish take on the economy Sonders is relatively bullish on stocks at these prices, providing you have a long time horizon and apply some crucial quality control.

“What I would tell a 22-year old investors who’s got a 40-year time horizon, inherited a million dollars and doesn’t need the money now is ‘back up the truck’ and buy here, because even if the low isn’t t in it’s a great opportunity.”

“If it was a 75-year old investor who has a nest egg and they’re living off the income associated with it and they can’t afford to lose much or any of the principal, what I would tell that investor is entirely different .”

“So, broadly from a tactical perspective, what we’re saying for equity investors, especially those who are stock-pickers, is don’t get out over your skis. Don’t take risk beyond what your strategic allocations suggests is appropriate. Make sure you’re diversified, including outside the US. But importantly, stay very much up in quality.”

In terms of what to buy specifically, Sonders says investors should get away from seeing everything through the lens of sectors.

“We moved away from sector recommendations back in February and went to a sector-neutral approach because we’ve been emphasizing factor-based investing to a much more significant degree than sector-based.

“Factors that we’ve been emphasizing that anybody really can screen for through a variety of sources including our own, would be strong free cash flow, healthy yield, balance sheets with low debt, high cash, positive earnings revisions and sticky profit margins in a growth constrained environment.”

“That’s a quality wrapper around a number of different factors, and you can apply that type of screening across all sectors.”

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