Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with Stifel CEO Ron Kruszewski about how the markets are faring amid COVID-19.
BRIAN SOZZI: I know you are very plugged into the markets. You enjoy talking about the markets. What do you make of this postelection rally? Do you think it's justified?
RON KRUSZEWSKI: Well, I think it is. When you take the combination of the election and divided government, just from the market's perspective, that takes off-- potentially takes off the table a tax increase, which would obviously impact earnings. And so I don't think that people are now thinking there will be a tax increase, so that's a positive for the market.
Obviously the vaccine announcement on Monday was a huge boost really to the credit markets. All the banks rallied significantly. So you're seeing a lot of ingredients that are bullish for the market.
And one of the things you need to watch here that-- this sounds technical, and I don't want to be too technical, but it's driving the market a little bit is the real yield. And what that is, just think of it as the 10 year, which is about 95 basis points less inflation expectations for 10 years, which it's about 175 basis points. That means we've got negative real yields, and that means that that supports, you know P/E, and that supports the market. So you've got to watch that. If real yields come up, that'll take a little air out of this market, in my opinion.
BRIAN SOZZI: Ron, are you concerned that the incoming administration won't be as friendly to the financial-services sector as I would say the Trump administration has been as friendly the past four years?
RON KRUSZEWSKI: You know, look, administrations have different views. For the most part, it's going to be in regulation. And so, of course, there will be changes in regulation. I've been CEO for 25 years, have been through both Democratic and Republican administrations, and have been able to operate our business just fine. So while there will be changes, I don't see anything so, you know, really dramatic for our firm or for the financial services in general.
JULIE HYMAN: It's Julie here. It's great to have you on, Ron. I want to ask about how all of this feeds into your business because as a financial institution unlike, say, the big consumer-facing banks, you guys rely a lot less on net interest income, and so you haven't perhaps been hurt as much as we have seen rates where they are, at least not in that part of the business. But if you're right and we're going to see real yields start to pick up, how is that going to feed through to your various lines of business?
RON KRUSZEWSKI: Well, in general, I would take a step back. I think the real yield is-- I was trying to point to the market and how it impacts P/Es, especially for growth stocks.
As it relates to our business, what I really want you to think about is the amount of sort of reshuffling of the deck that we've done in the economy and how much stimulus has been put into the economy and how much has to be done to recapitalize industries that have been hard, to restructure debt. We're talking about an infrastructure bill. There's a tremendous amount to do in the United States infrastructure.
And so when you put all that together and look at the amount of things that need to be done, as a financial institution, you know, we're at the fulcrum between savers and people who need capital. And so we're busy, and we're going to be busy into the foreseeable future.
So I think that outside of our NII, as an investment bank and a wealth-management firm, there's a lot to do. A lot of uncertainty yet a lot to do. So I plan on working pretty hard for the next few years for sure.
MYLES UDLAND: Hey, Ron, it's Myles here. I wanted to ask you another question about a part of your business that really jumped out to me, which is what you've seen on the commission side with the brokerage business, the volumes that you and so many other of your peers have seen. Huge surge, obviously, through all the volatility, but there's been this sense that maybe folks are getting more excited about being involved in the markets, individual investors, things like that. Are those kinds of trends that you think might stick around longer term?
RON KRUSZEWSKI: Well, a lot of that you're seeing on what you're calling the brokerage business is driven by the institutions that are repositioning their portfolios. So our institutional equity business and our institutional fixed-income business has been elevated as, again, you're seeing repositioning across the board from equities to fixed income.
On the individual-investor front, we're seeing the same thing. I think one of the controversies that's always in front of our industry is the difference between brokerage accounts and fee-based accounts. And, in fact, that may be something that the new administration will look at again. It seems like we've been talking about this for a decade.
But one of the things I want to point out that we're working on and I would hope the industry would work on is what I like to refer to as the democratization of private markets. I believe that individual investors should have an opportunity to invest in these companies that are pre-IPO where there are a lot of gains being made prior to the public markets. And I think if we're going to talk about fair market opportunities for individual investors, we as an industry and regulators need to create an environment where the average investor can allocate a portion of their investable funds to private markets. That's something that I hope we really tackle so that everyone can share in these growing companies that are creating a lot of value and disrupting economies.
BRIAN SOZZI: Ron, I want to make the argument one of your reasons-- one of the reasons why your stock is at a record high, you've had a lot of success recruiting and getting a lot of really good talent into the organization. How is that going to change? Really, one of the gorillas now in the room here is Morgan Stanley nearing a purchase of Eaton Vance. How do you-- how is that war for talent going to pick up?
RON KRUSZEWSKI: Well, I think that, first of all, we've been growing for over two decades. We are one of the few firms that can say this. I'll probably jinx myself by saying this, but, you know, we anticipate this year being our 24th-- 24th consecutive year of record revenue. There's not a lot of firms that can say that. And that is driven by our growth in people that have gone from 800 people to almost 8,500, and that's recruiting.
And when I look at recruiting, our strength is that we combine great, you know, technology on one side-- and we have to be that. Those are table stakes. But what we still-- what advisors that are joining us like is that we believe in the entrepreneurial nature of an advisor. And so we let people do what they think is best. We don't have a corporate over-- you know, of course we have compliance, but we're not telling people what to do. We're allowing them to choose products.
Firms like Morgan Stanley, obviously a great firm. And the purchase of Eaton Vance is a great move. I have a lot of respect for the firm. But advisors are increasingly and have been for years choosing Stifel because of our advisor-first model coupled with just simply great technology.