Market talk with Richard Excell

Richard Excell, clinical professor of finance at the University of Illinois Gies College of Business returns to The Yield returns to the podcast for a follow-up conversation about all that has, and hasn’t changed in recent months, as well as drivers that have the potential to move the market back in the right direction. 

Key Takeaways:

[11:53] The correlation between a variety of market drivers. 

[14:03] The impact of midterm elections on the market. 

[20:55] Understanding the meme stock craze and recent corporate actions.

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Simply put, there hasn’t been much good news on the global economy lately.  Richard calls it a technical market in which we still have to maintain a very bearish position. In such markets, catalysts for positive momentum are key. The most dangerous words in the market are ‘this time it’s different’, because this time we might be at the point where there’s an inflection, and there might not be as much consistency across central bankers in terms of supporting their riskier markets. Not unlike a parent who threatens a child on a roadtrip to improve their behavior or there will be a consequence, the Fed seems to be insistent that the market is hawkish. And if they double down on that hawkishness, that is something that the market is going to have to pay attention to. 

But what’s priced in and what’s not? And what does any of that mean? Richard explains the current market situation, where it could be headed next and what that means for investors. What if instead of a bear market rally this is the genesis of a bull market rally?  The first six months of the year was driven by multiple contractions while the last six weeks have been driven by multiple expansion, and if we start to price out more hike rates, the multiples have room to expand even further.  

Additionally, we can’t forget that implied volatility is a huge component to the asset allocation decisions for a lot of different people.  Risk parity is a significant risk of the market, as well as implied volatility.  It’s possible each of these factors is corollary, and the time of year and global market concerns could both play a factor as well.  As Richard puts it, when everyone’s leaning one way it doesn’t take a lot of big news to move things hard and the other way.

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Above all, inflation certainly seems to be the biggest driver of current expectations. But have we seen any real material change in inflation? Has the Fed been burned by a model they trusted that didn’t work the way they thought it would? Even with a handful of anomalies in the mortgage and equity markets, Richard’s advice is to be pragmatic rather than dogmatic, and to add complexity to your portfolio so that you’re not being forced into positions at the same time as everyone else. 

With insights into the recent meme stock craze and the associated corporate governance actions, Richard shares his wisdom about when to bet and when to fold.  As he warns, if you don’t know who the sucker at the card table is, it’s probably you.  And because the market is somewhat broken from a structural standpoint, it doesn’t take a lot for people to drive prices higher.  Don’t miss the three key catalysts that he recommends looking out for as we enter the final months of 2022, and don’t miss out on your opportunity to expand your portfolio with alternative investments.  To learn more about your options, visit www.yieldstreet.com today. 

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