Recently, I had the honor of hosting a live virtual event featuring a financial market outlook and overview with Sequoia Financial Group’s special guest, Liz Ann Sonders, Senior Vice President and Chief Investment Strategist for Charles Schwab, & Co., Inc.. A leading voice on the markets and investment strategy, she is frequently quoted in financial publications, such as The Wall Street Journal, The New York Times, and appears regularly on programs including CNBC, Bloomberg and Fox Business News.

During our event, we reviewed key drivers of the economy and markets over the last 15 months, and offered a look forward at what leading indicators might be telling us about the economy.

With stocks near all-time highs, and the economy expanding  strongly, it might be tempting to assume everything is fine. During the pandemic, and largely due to quick action by the Fed and fiscal authorities, we experienced a very short bear market. Although we’ve seen much growth since that time, some of those startling figures may be the result of year-over-year comparisons. There is some concern over a very lackluster jobs report from April 2021, and many are waiting to see May’s report to ascertain whether the economy is as strong as it appears.

Data sets are noisy right now, with individual indicators falling over a wide spectrum. The April jobs report, retail sales and other economic data lead us to believe that growth is not as robust as was expected. It’s possible the strongest numbers are behind us, or that April was just a short-term pause in growth. We should get a much better sense as we get more data over the summer. Liz Ann agrees that although we see some speculative areas being trimmed back with a few micro bubbles losing a bit of air, these are not cause for panic. These may be indications that   the market is already repricing some asset classes.

Liz Ann and I also discussed the likelihood that the Fed will back off from its highly accommodative posture. If strong economic growth continues, there is the possibility of overheating. If that happens, we can expect to see the Fed to start discussing the potential to tighten policy, although Fed Chairman Jerome Powell has  been clear he believes an overheating will likely be “transitory”. Liz Ann shared a story from a luncheon she attended with Chairman Powell as the keynote speaker. At one point during his address, he looked up from his notes and reminded attendees it’s important for investors to understand that although the  Federal Reserve is concerned with inflation and employment, it is focused on financial system stability, distinct from financial market volatility. It’s not the Fed’s mandate to control corrections and growth.

Liz Ann also weighed in on inflation, saying she is asked about this area the most, along with the potential for hyper-inflation. She remarked we are seeing indicators of inflation in traditional metrics like the consumer price index, but that those traditional metrics may not give us a complete picture. The Fed believes the key short-term forces driving up inflation are “transitory”, and the supply-demand imbalance that arose from the pandemic-related shutdown and economic restart is having an effect. We both agreed many of the forces that supported the inflationary crisis in the 1970s seem to be absent in the current situation, but that long-term pushes and pulls, demographic changes and deglobalization could apply some upward pressure. The best course of action appears to be a diligent wait-and-see approach.

At the end of the day, we also agreed the current environment warrants patience, discipline, diversification and a balanced approach. It may not be fun or stylish — or even easy — but the tested wisdom of long-term strategic planning breeds success. The global pandemic brought significant disruption to normal economic and market patterns, but it appears human resilience is a significant factor in our recovery.

>> Listen to the recording of my conversation with Liz Ann Sonders to hear more.