Despite a slight recovery from a market sell-off, following worst trading day of 2019 on Monday, financials have still been hit hard for SPDR S&P Bank (KBE) for the 6th day in a row, making it the worst daily performance since December 2018.
Ron Kruszewski, CEO of Stifel, stopped by to talk on CNBC’s “Squawk on the Street” to discuss how investors reacted, before moving on to bigger topics. He notes how, despite escalating trade tensions, the market hasn’t shifted very much since last year. With the equity risk premium being up, he believes the markets are fairly valued.
In regards to today, Kruszewski explains how the market is using its currency, such as strong employment, consumer, and markets, to negotiate trade, which is important. It will create some volatility, but the trade does need to be resolved.
When asked about negative interest rates outside of the U.S., Kruszewski figures it’s some kind of anomaly, compared to the U.S., where it’s the only developed country to have real interest rests. He notes, however, that the 10-year is coming up, and inflation expectations are speculated to be 1/6 at 10 years and 10 years at 1/7.
“I think markets are fairly valuable…look at the equity risk premium, which is nearly 400 bases points now. I think at these levels we have some room to move up here,” Kruszewski said in regards to his own previous cautions to the markets a few weeks ago.
This speaks to trade and what the Fed does, in addition to the status of Brexit, which is going to have a significant (and likely negative) impact as well. As Kruszewski explains, if there’s a hard Brexit at the end of October, “That could cause Europe to go into a recession and we would not be immune to the impact.” It may not but the U.S. in a recession, but it would hurt the markets.
This would also mean Europe would have negative interest rates going into a recession, which is not good, but certainly interesting.
When speaking of the Fed and the possible number of cuts, Kruszewski believes they’ve done a phenomenal job, making up for too many increases the previous year, with thoughts that one more cut may occur to take them back to a neutral position. Additionally, the thing to keep in mind is the strength of the current economy versus a trade situation that’s going to take some time to resolve.
“For the long-term health of the U.S. economy, by dealing with that $300 billion [trade]surplus that China has with us, it will be positive for the U.S. investor and the U.S. market,” Kruszewski went on to say.
As far as the second half of the year for Stifel is concerned, Kruszewski made it clear that he sees stronger revenues, and stronger activity across the board. There may be some shifts in the market here and there, but the forward look for this half of the year is upward.
That optimism comes from a gain in market share. Stifel has done a number of transactions, with 23 years of record revenue, and things should remain similarly the same.
Concerning retail investors, Kruszewski also noted, “Time in the market is more important than timing the market.” So, for the investors, an opportunity is there to add to positions. It’s especially evident given the lack of off-sell compared to investors who are very engaged and optimistic with what’s going on.
Watch What Ron Kruszewski Had To Say:
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