Eric Sterner, Chief Investment Officer at Apollon Wealth Management, joins Cheddar News to discuss the markets on the final day of trading. 

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Markets Still Face Downside Risks 

All right, I want to bring in Eric starter chief Investment Officer at a Pollen Wealth Management. Eric, thanks so much for joining us. Welcome to the show. What's your reaction so far to how markets have opened on this final trading day of the week? Uh Well, good morning cloth. Thanks for uh, having me here. Yeah, I, I think, um, you know, unfortunately, I, I, we are probably gonna see some, some more red this year, uh, following last year in the equity markets. I think we still have uh plenty of, of, of downside risk and, um, just with a, as Powell noted this week, we are gonna be under restrictive rate, uh levels um from all of this year and, and potentially a few more rate hikes and, and with that, with the rapid series of rate hikes that that began last year. You know, we're really start, those have not fully been absorbed into the economy. We're starting to see the effects as we saw in the fourth quarter earnings, but we're going to see more of those effects in the coming earnings season and that's where I think we're going to see some more pressure on stock valuations uh in the coming months, so much market moving news coming out this week. I want to focus on banking again because it just seems like the bad news doesn't stop coming for that sector right now. We've been watching Deutsche Bank Sink this morning based on a spike in credit default swaps after that forced acquisition of credit suisse, dragging down European and us big bank stocks as well. What's going on there? Do investors have a right to be concerned? Oh, sure. I mean, there's, there's always a reason to be concerned with these major headlines. Um but I, I, I don't think there's, there's a major risk of cahe there. I think sentiment con is definitely uh uh happening and that, that can sometimes be just as scary when, when investors are are there's a um bank runs at, at, at certain um uh region and smaller banks. But you know, if you look at the some of these recent stories, I mean, Silicon Valley, it was a very unique situation where um you know, they, they just, it was poor uh portfolio duration management. I mean, the FED has been very transparent as far as what they were going to do. We all knew we had an inflation problem and the FED was going to need to hike rates. So it was just a matter of these banks and every investment manager adjusting their portfolios to account for that and the effects of those rate hikes on their bond portfolios. So, um, I, I think that was more internal uh credit sue, I mean, their, their problems go back years. This is not the result of, of what the fed has done over the past year. So I don't, I'm not too concerned. Um, you know, we'll definitely keep our, our eyes, our ears open um, as other uh pressure comes to other financial stocks, but I think the pressure is going to be applied to every company in every sector. As I think a recession is, is coming around the corner. Now, you've mentioned a couple of times the latest 25 basis-point rate hike. But in spite of that, you don't believe that inflation is actually going to drop below 3.5% by the end of this year. We know the Fed is aiming for 2%. So what factors are leading you to believe this? Yeah, I I I think we're gonna continue to make some progress but there's still such a high demand on the services side which is really keeping that inflation sticky and, and stubborn. And we have China um coming out of their zero COVID uh uh um environment. So that's going to uh apply some upward pressures. And of course, our tight labor market, I mean, as, as the, you know, fed tightens its rates, the the last indicator of the fall is the labor market. But because the participation rate in the labor market has dropped its, we have nearly two million people, um, out of the labor market then pre pandemic, that's really putting more pressure and continuing to apply some more wage pressure in the labor market or wage growth. Um, now it's starting to cool but it's higher than, than what the fed would like to see. Uh, so I, I think with all those factors, they are putting still some upward pressure on, on inflation, it's gonna take some time and, and I think that's what the FED is, is, has been trying to tell us over the past several months. Um So it's just a matter, it really is just a waiting game and, and staying defensive with the portfolios because I don't see the equity market getting on any sustained rally until we get closer down to 2%. Now, will we get down to 2%? I, I, I don't think so because we are taking some uh backpedaling from the globalization movement. The world has changed since the, since the pandemic and I don't think we're going to be in a zero interest rate environment um like we were for, for many years. Uh but we do need to get closer to that 2%. So if it is the new normal inflation rate, 3% it may be uh but clearly it's too high right now. Well, unfortunately, that is all the time we have this morning, Eric, but thank you. So much for your insight. That's Eric Turner, chief Investment Officer at a Pollen Wealth Management.