Patti Brennan was invited to the floor of the New York Stock Exchange as a featured market expert for Asset TV’s A View From the Floor alongside Emmy Award-winning journalist and TV host Michelle Yu. During the conversation, Patti shared her perspective on market volatility, inflation, oil prices, asset allocation, private markets, and the long-term mindset investors should maintain during periods of uncertainty.

Complete Interview Transcript:

Michelle Yu 

Welcome to A View from the Floor here at the New York Stock Exchange, I am joined by a very special guest today. We have the CEO of Key Financial, Patti Brennan. It’s great to see you, Patti. Let’s start talking about the markets.

A lot has gone on in the markets this year already, but midterm elections are still to come. Why does that matter to investors?

Patti 

You know, the market doesn’t like uncertainty, and boy, if there’s anything that we are uncertain about, it’s the upcoming midterm elections. The second year in a presidential cycle does tend to be more volatile, so we don’t have very high expectations for this year. However, I will tell you that the market tends to be really volatile up until the election, and then it calms down, because now we know: Were our people elected or not? And then people move forward, right?

CEOs really don’t make their plans based on something as short term as an election cycle, and that’s what we want our investors to do as well. Think beyond the election.

Michelle Yu 

Now, one of Warren Buffett’s favorite valuation indicators is the ratio of US stock market cap to GTP, which is right now at historical highs, about 230%.

What do you tell your clients about that? How do you factor all of that in?

Patti 

Valuation really matters. Here’s the thing, the stock market is a leading indicator. It’s trying to predict. It’s not determining each day whether things are good or bad. It’s whether things are going to get better or worse. Right now, with all the AI focus, the market (which is a bunch of opinions), believes that AI is going to make companies that much more profitable and worth a lot more money. So the Buffett indicator: historically, Buffet famously said that we are playing with fire with an indicator over 200%. At 230%? It’s pretty crazy. The house is burning down according to that indicator. But it’s not necessarily indicating that the market is going to crash. We’re just bringing forward the returns, perhaps, of the next decade. So our expectations going forward are going to be a lot lower than they may have been historically.

Michelle Yu 

What is your outlook on oil right now and what’s happening with inflation?

Patti 

Yes, inflation is serious. It forces people to make decisions, and it affects people differently. Some people are not affected. You know, services inflate faster than goods, so people who are older tend to be impacted by inflation more than people who are younger. So it is an important factor, and oil certainly leads to that. It’s kind of like…You know what it’s like? It’s like, let’s say I packed on 20 pounds. On the outside, I look a little chunky. But the bigger impact is the impact that’s often unseen, and that’s the impact that oil has. It’s unseen, you know. It impacts what you know companies can do. It impacts what we can do, what we can afford, and GDP, what consumers are able to buy or not buy. And then that leads to that domino effect of, you know, unemployment because people are getting laid off because companies aren’t making as much money, because they’re not as profitable. And remember, companies answer to Wall Street. They care about profits, whatever they need to do to increase their profits over time, that’s what they’re going to do, and that could affect the economy. So the market is simply trying to anticipate the impact of this inflation on consumers. I would submit, again, not everybody is impacted negatively. Not everybody is going to have to make different decisions. You got to run the numbers, run stress tests. If inflation does average closer to four or five percent, How are you going to be affected? Are you going to be okay? Are you going to run out of money? That’s important, far more important to know now than find yourself at that point when there’s no choice but dipping into principle to the point that you run out.

Michelle Yu 

So with that being said, what areas of the market right now are attractive to investors?

Patti 

I would say operating companies that have pricing power are where you want to focus. Let’s not do market timing. Just understand that inflation is here. It’s probably going to be here for a while. Just like I can’t lose 20 pounds in a week, this is probably going to be around for a period of time, and you want to make your plans accordingly. So investing in things that do well during inflationary periods, companies that have pricing power, that’s where you want to be.

Michelle Yu 

What are your thoughts right now on asset class allocation?

Patti 

I would say asset allocation is the most important decision an investor can make. And there are pockets of the market that are still attractive in spite of what you know, the Buffett indicator suggests. I would look at small caps. I would look at international. Don’t necessarily look at what happened over the last 10 years. Remember, just like the market, you want to look forward. Where do you want to be for the next 10 years? I would also add, be careful about being too conservative. Let’s not confuse stable with safe. Sure you might have income from those stable investments, like bonds, but is that really safe? An inflationary period, as we learned in 2022… that’s not necessarily where you want to focus.

Michelle Yu 

Finally, there has been a lot of misconceptions about the private markets. Can you kind of explain your perspective on that?

Patti 

You know, private markets can be appropriate for the right investor, somebody who doesn’t need the liquidity that we have in the public markets, that can be terrific, because you can often find better opportunities in private markets. Companies are staying private for a much longer period of time because of the regulatory pressures that you have as a public company. So I think that the negative press that a lot of these private market investments have gotten really are kind of overblown, to be perfectly honest with you. Let’s take private credit. For example, it’s a $25 trillion market, yet the real issue happens to be in direct lending, which is only about 1 trillion of the 25 so there’s a lot of negative press. Let’s look underneath the hood and understand what you’re investing in and make sure you’re not exposed to that kind of risk.

Michelle Yu 

Patti:  a Trevi Fountain of knowledge. Thank you so much for joining.

Patti 

Thank you so much, Michelle. I love doing this with you, thank you for having me here.

Michelle Yu

Well, the audience loves hearing you as well, and that’ll do it for us here at the New York Stock Exchange. I’m Michelle Yu, we’ll see you next time here on asset TV.