Ask anyone in finance about “Liz Ann” and they will know who you are referring to. This is Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, who has been following, analyzing and commenting on financial markets from this perch for nearly 22 years, always with the individual investor in mind.

Sonders is regularly included in Investment Advisor’s IA25 list of the 25 Most Important People to the Financial Advisory Community, and has been nominated for The 100 most influential women in finance according to Barron list and celebrated as Best market strategist through Kiplinger Personal Finances.

ThinkAdvisor asked him to participate in our new series in which we ask well-known figures in the financial industry 10 questions related to financial markets, work and after-work activities.

Sonders, who is still analytical, responded unsurprisingly with bullets, making it clear the points she wanted to communicate. We converted these bullets to full sentences.

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Here are our questions and their answers:

THINKADVISOR: What are the market indicators, industry statistics, regulatory changes or advisor trends? you are looking more closely at the moment and why?

LIZ ANN SONDERS: The correlation between bond yields and stock prices. For three decades from the late 1960s, the correlation was predominantly negative; for two decades since then, the correlation has been mostly positive.

A renewed / persistent negative correlation could suggest a secular inflationary environment; A renewed / persistent negative correlation would also mean that the benefits of diversifying bonds over stocks would diminish since the negative correlation bond yields / stock prices = positive correlation bond yields / stock returns.

How has that changed recently (2021) and how do you think it will change (2022)?

The correlation fell to negative in mid-2021 at the start of the inflation spike, but came back positive. If supply shocks continue to dominate (as in the 1960s-1980s) relative to dominant demand shocks (as in 1990-2010), a more lasting negative correlation of bond yields / equity prices could occur in 2022.

What would you suggest that advisors do now or consider doing in the future about this?

Consider a more active approach on the fixed income side of the portfolios. Broaden diversification beyond equities and bonds, including international and alternatives, and take into account potentially higher turnover depending on taxes, etc. Al. Consider moving from schedule-based rebalancing to volatility-based rebalancing (eg more frequent reduction in strength / increased weakness) to stay in tune with the market and strategic allocations.

Who or what source of critical information do you follow or follow online to keep with this trend or others?