It’s not just the prospect of deteriorating fundamentals that has Man Group’s Mark Jones skeptical about stocks these days. It’s also the risk of money flowing into fixed-income investments now that they’re sporting attractive yields. Jones, who is the deputy chief executive of the world’s largest publicly traded hedge-fund manager, joined the What Goes Up podcast to give his outlook on markets and explain what strategies have been working well at his firm.“I think the risk-reward in equities is very, very tough at the moment,” he says. The first reason is a potential further cut in earnings expectations. Second is the flow of money into alternatives to stocks such as government bonds and corporate credit. “Whether that’s the consumer or whether that’s big institutional clients starting to come back to an asset class that, frankly, had fallen relatively out of favor, some of that flow of funds is also an issue for equities as just people move money around.”See omnystudio.com/listener for privacy information.

If there’s one thing that keeps professional investors up at night, it’s being involved in a “crowded trade.” In other words, a position that’s become so popular that there are few investors left to get involved with it, so there’s risk of painful losses for all if the crowd heads for the exits.That’s part of the appeal of microcap stocks for Patrick McDonough, a portfolio manager at PGIM Quantitative Solutions. He joined the What Goes Up podcast to explain his approach to analyzing these smaller, younger companies whose values are often measured in millions, rather than billions, of dollars. Since many investors are more comfortable with bigger, more-established companies, microcaps offer a unique and overlooked source of growth.“It’s something that people have historically avoided,” McDonough says. “Which means it’s not crowded. So it’s an area we can go in and get a lot of upside.”See omnystudio.com/listener for privacy information.

When Steve Sosnick recalls 2008 and tries to make parallels to the current turmoil in the banking sector, one memory sticks out: riding the elevator with Thomas Peterffy, founder of Interactive Brokers, who offhandedly asked him “what’s new?” “And I said, ‘what’s really interesting to me is the story that I’m reading this morning about how Bear Stearns may have as much as $20 billion in losses at some of their hedge funds,” recalled Sosnick, who’s currently chief strategist at Interactive. “And he said, ‘what’s their market cap?’ And I said, ‘I think about $20 billion.’” “‘Are you telling me Bear Stearns is broke?’” Peterffy asked. Sosnick recalls saying, “‘I guess I am, aren’t I?’” Sosnick joined the What Goes Up podcast to discuss what lessons from the 2008 financial crisis can be applied today. Though the current predicament isn’t similar to that period—banks are in much stronger positions and the economic backdrop is vastly different—it’s important to keep lessons learned in mind, he says.  “They say history doesn’t repeat, but it often rhymes,” Sosnick says. “And I think there’s a certain rhyme to it, but we’re not there yet. And I certainly hope we don’t get there.”See omnystudio.com/listener for privacy information.

Torsten Slok had been firmly in the “no landing” camp of economists. More positive than a “soft landing,” its adherents say the Federal Reserve will tame inflation without triggering a recession at all. But for Slok, chief economist of Apollo Global Management, that all changed with the failure of Silicon Valley Bank. Now he’s bracing for a “hard landing.” Slok joined the What Goes Up podcast to discuss the sizeable role regional banks play in the US economy, and the reasons why SVB’s collapse changed his outlook. A big reason is how regional banks may now change their behavior.“Regional banks make up 30% of assets and roughly 40% of all lending,” he explains. That big chunk of the US banking sector is now looking at what happened to SVB and worrying what comes next. With a slowdown potentially underway thanks to the central bank’s rate hikes, Slok warns a reluctance to lend by SVB’s mid-size brethren might mean it comes “faster simply because of this banking situation.”See omnystudio.com/listener for privacy information.

Jeremy Grantham blames the US Federal Reserve for creating a bubble in asset prices—one he says has a long way to go before it’s fully deflated. As a result, stock prices may not reach bottom until late next year, he warns. The 84-year-old co-founder of investment firm GMO joined the What Goes Up podcast to explain what he calls the current, “meat grinder” phase of the market, and why he believes the central bank has “hardly gotten anything right.”  “Since Alan Greenspan first arrived—Paul Volcker knew what he was doing—but since then it’s been a long, continuous horror show,” Grantham says of US monetary policy. “They’ve engaged in policies that drive up the prices of assets, other things being even, and create spectacular overpriced bubbles. They then break because that’s what bubbles have to do. They simply break of their own extreme overpricing, and we pay a very tough price.”Grantham also discusses broader market risks, including shortages of labor and natural resources, the climate crisis, de-globalization and a new version of the Cold War. “All of these long-term factors are beginning to bite,” he says. “This will make this particular down-leg more dangerous, and perhaps worse than we anticipated.”See omnystudio.com/listener for privacy information.

Princeton University’s Alan Blinder is one of the most prominent economists to have expressed optimism that the Federal Reserve can engineer a so-called “soft landing” for the US economy—taming inflation without triggering a recession. But Blinder, who served in the 1990s as a vice chair of the Fed and a member of the president’s Council of Economic Advisers, explains on this episode of What Goes Up why he’s toned down his assessment. A big reason is the change in the way the Bureau of Labor Statistics adjusts inflation data for seasonal factors, he says. The result is that, while inflation moderated in the second half of 2022, it didn’t cool off as quickly as previous data indicated. Blinder says that means there’s reason to expect more rate hikes from the Fed. “I think they still have a chance” at a soft landing, he concludes, “but it's a tougher chance than it was.”See omnystudio.com/listener for privacy information.

Exchange-traded fund managers have seen massive inflows into fixed-income ETFs in recent months. As the dust settles from the bond market’s worst year on record, ETFs focused on safe and simple Treasuries have attracted the bulk of the money. Stephen Laipply, the US head of fixed income ETFs at BlackRock, explains this state of affairs on the latest episode of the What Goes Up podcast.Many investors who follow a standard strategy of investing 60% of their portfolio in stocks and 40% in bonds have found it to be the right time to “fix” that 40% segment, Laipply says. “Investors are looking at this market, the public fixed-income markets, and realizing that they can ‘fix’ their 40 by de-risking it to varying degrees,” he says. “You don’t have to have the majority in high yield to get a certain yield target. You can allocate to the front end of the Treasury curve and get yields that you were seeing at some point in the high-yield market. So it really is an opportunity to get back to what that 40 was supposed to do, which is diversify your risk assets.”See omnystudio.com/listener for privacy information.

The stock market may be off to a great start in 2023, but investors should be “mindful about not being bullied” by the rally, says Wealth Enhancement Group’s Nicole Webb. She warns that it won’t last. The S&P 500 is up 7% so far this year, while the tech-heavy Nasdaq 100 has surged roughly 15%. Webb, a senior vice president and financial adviser at the firm, joined the What Goes Up podcast to discuss her views on the market and the speediness of the recovery. “To us fundamentally, does technology make sense from a valuation standpoint?” she said. “Much of this rally in mega-technology—or if you even want to just call it a Nasdaq rally year to date—it’s a little bit of an unwinding of the selloff of last year, probably closely followed by a bit of a FOMO rally.” “We’re not bullish on the stickiness of this as we don’t see any type of Fed pivot” from rate hikes in the near term.See omnystudio.com/listener for privacy information.

ChatGPT has taken the internet by storm, spurring all manner of experiments and examination as to what extent the artificial-intelligence model can supplant humans and daily tasks. But it’s also being used on Wall Street, where a number of exchange-traded fund issuers, including State Street, have grasped onto the concept to help put together innovative products.  Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors, joined the What Goes Up podcast to talk about using AI in portfolio construction. His firm’s SPDR S&P Kensho New Economies Composite ETF is up roughly 20% this year.  “The reason why we went down this path of using AI is that we wanted something forward looking—something dynamic—because back in 2018, we understood that, in the ETF world, there weren’t a lot of strategies that were this forward-looking, innovative-type paradigm,” Bartolini said. “The AI process was able to deliver that for us.” See omnystudio.com/listener for privacy information.

Morgan Stanley’s Jim Caron joined the What Goes Up podcast to dissect this week’s US Federal Reserve meeting and analyze how markets may have misinterpreted the message being sent by Chair Jerome Powell.“This is a guy who’s worried about inflation; this is somebody who’s not done tightening by any stretch of the imagination,” said Caron, the co-chief investment officer of Global Balanced Funds at Morgan Stanley Investment Management. But Powell’s comments triggered rallies in stocks and bonds amid speculation that the central bank was getting more dovish. “This is one of the risks that I think that we have coming up over the next few weeks,” Caron said. “That if the intended market reaction doesn’t match what the intended statement was supposed to convey, then, as is typical, there’s going to be some walking back of this.”See omnystudio.com/listener for privacy information.