Rally Stokes Optimism at Schwab Fund Gathering
BOSTON (TheStreet) -- On Sept. 23, 2008, Charles Schwab's (SCHW) - Get Report Impact investing conference kicked off in Atlanta, the same day billionaire investor Warren Buffett stepped in with a vote of confidence for Goldman Sachs (GS) - Get Report by purchasing $5 billion of stock.
Bob Auer, senior portfolio manager at SB Auer Funds, swung open the door to his hotel room the next morning to see the headline on the front page of
The Wall Street Journal
. "It was really shocking," Auer recalls in an interview. "Over the next three days, people were walking around the conference like zombies. No one was there. I spoke to, maybe, one adviser over those three days."
The collapse of
Lehman Brothers
throttled the stock market, dragging down the
Dow Jones Industrial Average
from more than 14,000 to less than 7,000.
Apple
(AAPL) - Get Report
, now hovering near its all-time high of $319, could be bought for less than $100.
At this year's Schwab conference in Boston, which ended Friday, attendance soared to 3,700 fund managers, advisers, spokespersons and marketing professionals, from 2,720 in 2009.
As the event drew to a close, the
S&P 500
of the largest U.S. stocks had jumped 13% in the previous two months, bringing the year's gain to 6.1%. Investors widely expect the Federal Reserve to announce a second round of bond purchases at this week's FOMC meeting, a move aimed at accelerating the sluggish economy, which is pulling out of the deepest recession in 80 years. Gross domestic product in the third quarter grew an annualized 2%, only slightly faster than in the previous three months, the government reported Friday.
"This year, there's a little more optimism," says Tom Lydon, president of Global Trends Investments and editor of ETF Trends. "You can see a little faster move in the step of the average adviser as he's walking down the hall."
Schwab this year reminded attendees of the global meltdown by booking former Treasury Secretary Henry Paulson to offer his inside view of the collapse of investment banks
Bear Stearns
and Lehman. Paulson, a former Goldman Sachs CEO serving under President George W. Bush, helped give support to
JPMorgan
(JPM) - Get Report
in acquiring Bear Stearns. He didn't extend the same backing to
Barclays
(BCS) - Get Report
, which sought to buy Lehman Brothers. Lehman ended up filing for bankruptcy, roiling the financial industry.
Schwab's chief investment strategist, Liz Ann Sonders, who interviewed Paulson onstage last Wednesday, says she felt she had to apologize for her pessimism at Schwab's 2007 gathering but that her pessimism was shared at Impact a year later following the financial meltdown. The Dow crossed 14,000 for the first time in July 2007 as real estate prices peaked and commodities such as crude oil soared.
"In 2008, I was still pessimistic, but I didn't have to apologize for it," Sonders says in an interview. "In 2009, I was quite optimistic, but I had to apologize for that optimism. There was not yet full acceptance of it. This year, you can be optimistic without apologizing for it. There is that sense in the room that things are improving."
Uncertainty, in the form of midterm congressional and gubernatorial elections tomorrow as well as the Fed's most important meeting of the year tomorrow and Wednesday, is holding back further stock-market gains. After all, corporate earnings have been stellar -- more than 70% of S&P 500 companies have beaten earnings estimates for six straight quarters, according to
Bloomberg.
"We're entering a very seasonally strong period for the market," Sonders says. "We're on a path to alleviating some of the uncertainty, although certainly not all of it. I don't know that there's any moment in time when the bell is going to ring and everyone is going to feel good again."
During his keynote speech last week, Jim McCool, executive vice president of Charles Schwab, compared investment advisers' challenge to the expedition across the U.S. by explorers Lewis and Clark.
"Be bold," McCool said. "While others are paralyzed," investment advisers are "ready to charge ahead."
Fund managers and advisers lamented that individual investors have yet to return in droves to the stock market. Though the Dow has rebounded from less than 7,000 in March 2009 to 11,118 on Friday, many investors are still down by a third because of the stock-market crash.
"If you're an adviser with a buy-and-hold asset-allocation approach for the last couple of years, you're still feeling a lot of pain," Lydon says. "Assets are down, and clients aren't happy."
That said, Lydon says the financial crisis of 2008 has forced investment professionals to work harder for clients.
"It used to be a very easy business, more of a relationship business, because the markets actually took care of you. It's not that way anymore," Lydon says. "'What have you done for me lately?' But ultimately, that's good."
Thomas Lapointe, a portfolio manager at Third Avenue Management, says Americans and the investing industry are on edge, with high unemployment, low interest rates and burdensome debt.
"People still have caution," Lapointe says. "People still see problems out there."
That tempered optimism shined through at Schwab's closing-night gala. The fund company typically books a superstar -- singer Sheryl Crow was hired in 2007. Since then, the celebration has been muted.
In Boston, Schwab organized a three-level party at the Citi Performing Arts Wang Theater near the financial district. The basement level had LCD televisions broadcasting the World Series game, and baseball fans were treated to mini-burgers and hot dogs in the buffet line.
One level higher, movers-and-shakers in the fund world were eager to see the night's entertainment. But instead of Aerosmith, the platinum-selling Boston natives, the audience was rocked by a tribute band as they ripped through "Love In an Elevator."
-- Written by Robert Holmes in Boston
.
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