Austin Graff, founder and CIO of Opal Capital in Austin, Texas, offers his take on why stocks opened higher Wednesday, saying investors appear tentatively optimistic about regulatory actions being taken around struggling banks, even as they remain worried about the long-term consequences of federal action on the sector. "

Austin Graff, founder and CIO of Opal Capital in Austin, Texas, offers his take on why stocks opened higher Wednesday, saying investors appear tentatively optimistic about regulatory actions being taken around struggling banks, even as they remain worried about the long-term consequences of federal action on the sector. "Investors are hoping that the worst has passed," he said.&nbsp;

Wake Up With Cheddar

Stock Markets Reflect Optimism as Investors Hope 'Worst Has Passed' 

All right, let's get another quick check of the markets. Before we bring in our next guest here, we have all three major indices still pointing up in the green, the NASDAQ up 1.3%. We have the S and P 500 up almost a full percent. And then we have the dow up about 7/10 of a percent or almost 220 points reflecting some optimism in the markets this morning. Now, I want to bring in Austin Graff, founder and Cio of Opal Capital, Austin. Thanks so much for joining us. Welcome to the show. What's your reaction to how markets have opened so far this morning? And the obvious optimism that we're seeing in the early moments of trading here. It's interesting because it seems like the market is a little optimistic of the short term uh benefits that are coming from some of the regulatory actions around the banks. While we think that this is a a benefit in the short term, we think longer term, there might be some, some pain in the system as banks rethink how they're lending and rethink their approach to regulation as regulators might come through with a stronger kind of regulatory framework going forward following the Silicon Valley Bank and Silver Gate situations. It seems like, you know, investors are hoping that the worst has passed in terms of the chaos and instability we've seen in terms of regional banks. But obviously, we did have the fed continue to hike interest rates that 25 basis point hike last week in spite of the collapse of SVB and signature. So how should investors be assessing this as we move ahead? It's really interesting because right now it seems like you have the bond market market assuming that uh a recession is coming because they're assuming the feds gonna have to reduce rates in the back half of 2023 you have the equity market assuming that the good times continue as valuations remain relatively high. We think one of those has to give uh and if the, if there is no recession, we think rates will stay higher for longer. So we think investors should be uh positioned in lower valuation companies that have business models that are resilient in a tough economic environment. Some of the places that were positioned in D I V Z, the active ETF that we manage are consumer staples, regulate electric utilities and health care because many of these companies have the ability to perform well in a recession and currently aren't trading at really high valuations. In the case of a recession here, you've said that some analysts, analysts recommend investors prepare by avoiding companies that have historically returned capital to shareholders in the form of buybacks and dividends. Do you agree with this? You know, it kind of assumes that all buybacks and dividends are are created equally and we don't believe that that's the case. Uh There are certain companies that do distribute dividends and growing dividends in various economic environments. We think even in the case of a recession, these companies will continue to distribute attractive dividends uh that grow over time. And so we think it makes sense to own some of these names. Now there are some marginal dividend payers and marginal buyback, uh buyback uh companies that that will inevitably stop buying back shares and stop paying dividends in a downturn. And obviously those companies are some that you should be avoiding going forward. Austin. Lastly here, we keep getting negative headlines about credit suisse as investigators continue to look at that bank, especially in context with what's happened with regional banks. Here in the US is credit suisse an example of a one off case of bad management or is there something more systemic at work here? It does appear as though it's, it's more of a one off case uh in, in the credit suisse situation, credit suisse has been having issues for years uh on the regulatory front as well as the business front. And so it seems like it's just mismanagement at an individual company but keep in mind as the fed and, and essentially central banks globally continue rising rates. Uh We'll be seeing the impacts of mis manage management going forward by collapses similar to credit suisse. So there might not be other banks collapsing due to the same issues as credit suisse. But we'll likely see other companies that have been mismanaged struggle in an environment where there's less liquidity than we've seen over the last 10 to 15 years. Really great insight there. Austin, something investors certainly have to look out for. Thanks so much for joining us this morning. That's Austin Graff, founder and Cio of Open Capital Baker. Back to you.