Tom Graff, head of investments with Facet Wealth, joined Cheddar News to discuss what investors should know about the stock market amid concerns about the banking sector.

Closing Bell

What Investors Should Know About the Stock Market Amid Banking Concerns

So many questions out there. Tom Graff joins me now, times ahead of investments at the investment adviser, Fasten Tom, thanks so much for coming on the show and what do investors need to know about the stock market? Well, thanks for having me. Um well, look, it's a challenging time, obviously. Um you know, investors, the last time we were talking this much about banks was probably in 2008 people. Remember what that was like? Um I think it's important to note that it's a really different time. We have banks suffering not because of credit losses, but because of really just deposit flight and that churning around the banking system, which is an easier problem to solve. Moreover, you know, we've got this crosswind from the fed. You mentioned they're meeting next week. It's hard to tell whether they're going to hike next week or whether they're going to take a pause and see how this this banking situation plays through the system. So a lot of crosscurrent. Right. Right. So looking at the stock market today, I mean, is it a head scratcher for you that we were up 2.5% on the NASDAQ, the S and P up 1.8%. I mean, this might send a signal to some people that the worst is over. Do you think that's true? Uh Well, look, I'm not surprised markets bounced on the news from, from first Republic. Uh You know, if we could stem the tide of bank failure after bank failure after bank failure, for sure. That's good news on the margins. I guess our tank is that wide widespread bank failures was never a likely scenario. That the much more likely scenario out of the banks is that as uh as deposits turn to the system, as deposits from one bank to another, as clients try to diversify their um their deposits and get under the F D I C limit, that's gonna make all banks more cautious and that's the more sort of intermediate term economic effect. And so I think that's it's an open question what that effect is going to be. So, what does this mean for inflation? Because believe it or not, it was just a week ago as of yesterday last Wednesday that the Fed chair was reiterating his statement in front of Congress that inflation had remained higher for longer rates were gonna rise for longer due to high inflation and a still tight jobs market. Was this move? What some are calling the bailout? Does it add to inflationary pressures? I think more likely the opposite actually. Um now it's TBD because it's totally possible that this all blows over. And then we're gonna look at that C P I data we got this week, which was, which was certainly too high. And that would indicate the fed is probably going to keep tightening. But remember the whole point of the fed hiking, interest rates is to try to slow down the economy enough to get inflation under control. Well, one way that might happen is if banks lend less tradition, you hike interest rates, you make the cost of funding for banks higher. And that's why they lend less. But it could be, as I said, this churning of deposits and making banks a bit more cautious that that could be the reason why banks lend less. In which case, at least one of the problems is solved. It's solved, unfortunately, in a sort of messy way, definitely not the way the FED would prefer, but certainly could be something that has the same effect as a large number of additional rate hikes, which is by the way, one reason why the Fed may communicate something about slowing down the pace, maybe pausing soon because they're going to want to assess the effect of on this all on the bank system, on lending habits. So what should investors do with their money? I'm sure it's different obviously for each age range and each different investment horizon, but just give us what we need to know in this current environment. Tom Well, look, I would remember that. Um first of all, for sure, if you're looking at your bank and your over $250,000 FDIC limit, you should think about diversifying your deposit someplace else. But really if you're over that limit, you should also be thinking about where else you should be investing your money. I mean, I think um for the long run where the really solid shape, maybe we're getting inflation under control. Maybe that means that interest rates are no longer this huge drag on the economy. You said today you saw lots of stocks in the green, but actually we've seen a lot of stocks in the green year to date even with all of these troubles. So I think the economy is going to be able to get to the other side of this. And so if your plan indicates you ought to have stocks and bonds for the long run, don't be scared out of it just because you're hearing a lot of difficult stories about banks and whatnot. This isn't like, oh, wait, it's really a totally different situation. Yeah. Breathing through fear. Right. Probably a good thing, Tom Graff, head of investments at Facet. Tom. Thank you.