U.S. stocks closed near their session highs on Friday after Federal Reserve chairman, Jerome Powell, signaled the U.S. Central Bank could slow the pace of rate hikes in the near future.  The Dow Jones Industrial Average jumped 2.18%, the S&P 500 grew by 3.09%, and the NASDAQ Composite added 4.41%.  Lisa Erickson, Senior Vice President and Head of the Public Markets Group for U.S. Bank Wealth Management, joined Cheddar News' Closing Bell to discuss.

U.S. Stocks Close Near Session Highs After Powell Signals Rate-Hike Slowdown

Alright well turning back to the major indexes joining me now is lisa Erickson, senior vice president and head of the public markets group for U. S. Bank wealth management alisa, thank you so much for coming on this show strong gains across the board today are you as well pricing in a 50 basis point rate rise come mid december. We do think it's reasonable that the pace of increases will slow and certainly on the back of a chair. Powell's remarks, he seemed to indicate again that the central bank is indeed thinking about how it can potentially slow down that piece of increases. That being said when we look at the picture overall with where monetary policy is going, it's clear as you mentioned earlier that inflation is while it's come down some still at elevated levels and so we are a little bit more cautious on the stock market just on the back of the fact that again central banks are still really trying to hold the reins on those price increases by still being relatively restrictive in their monetary stance. I think that's a good point lisa because even though the stock market by all means ripped today in a positive way any of those session, highs with the NASDAQ at 4.4% seems like the bearish calls actually just in the past few days have been growing that we could retest our Those that we could fall 20% from our current levels if we do get a recession next year. So taking a cautious approach here do you think for instance another 20% drop in the stock market is possible into 2023. Well overall we are still again more defensive on us equities. It's hard to say exactly how difficult things may get. But really the primary driver of that view is again, if we just look at the environment, we've got just a tougher road to hold with certainly interest rates being increased even if it's at a slightly slower potential increase over time. And in addition to that, when you see what's going on on macroeconomic indicators as well as company results. Again, what we still see are some indicators holding their own. But generally we're seeing deceleration both in the economy as well as in company reports. And so with again, uh them facing more difficulties potentially from consumers as in inflation still stays elevated with higher interest rates. Again, it's not clear when that earnings picture is going to clear up. So we would recommend all other things being equal again, a little bit more defensive stance with respect to equities at this time. What should consumers know lisa as inflation is still extremely hot and as it may take time for inflation to cool. So certainly on the inflation front, it's important to really assess, you know, how quickly it may come down and the good news is what we've seen for the last several months we have seen a decelerating pattern and our base case is that we'll continue to see again some of those price increases moderate as again, supply chains are continuing to heal and people begin to again readjust in terms of their labor market participation. And again, we may get some more relief on that front in terms of the tightness of what's going on with the labor market. And you mentioned again the jobs report earlier, That's just a sign that while there's still quite a bit of demand and job openings in the economy, again, that momo momentum is starting to decelerate indicating some normalization there on the labor market. So you know, really as that continues, it's just again, a matter of question of how quickly it will come down and we do believe again while it's going to come down, it could take some time. Where do you see opportunities lisa in the staff market that does remain volatile. So right now, our base case scenario is really for a little bit more broad exposure with the stock market as opposed to necessarily emphasizing one area rather than the other. More just the investments that are in the stock market to stay. They generally lower than you typically would in your long term allocation to stocks where we would find something of interest though is really more in high quality fixed income. And although also global listed infrastructure which would include sectors like utilities like transportation and like some communications and midstream stocks, both of those areas. Both the fixed income and listed global infrastructure allow higher current income which really can provide a buffer and a more volatile type of equity environment. What's the expectation lisa for corporate earnings as we head into next year. We've continued to see layoffs unfortunately, um immediately it seems like impacting the tech and startup sectors. But do you anticipate that more layoffs might be on the horizon? And we could see earnings contraction? Well, certainly that's really our biggest risk at this point again. And part of the reason why we're defensive on the equity market is because again, with, um, interest rates still being elevated as well as inflation pressures high, even though they are coming down to some extent. Um, it's just going to be more difficult for companies to continue to maintain earnings momentum. And so we see potentially a second re pricing based on those earnings estimates and actual earnings coming down as really one of the key risk for the market right now. What else? And young and Investors know Lisa for anyone, there's a different time horizon. Right, let's talk about young investors, maybe this is an opportune time for them. But let's also talk about the baby boomer generation who might need to think differently about that, their own portfolio and any adjustments that they should make heading into 2023. So certainly, uh, for those who are to your point really looking out as a long term horizon, we do always advocate for against always still staying focused on your financial goals first and overall what that strategic allocation should be. And so generally we don't advocate kind of an all in the pool and all out of the pool kind of approach. Uh knowing that again with a focus on longer term objectives, really continuing to have that diversified portfolio across different kinds of assets, whether it's against stocks, bonds or real assets makes a lot of sense. Uh Just for those who would want to fine tune again based on the more current outlook. Again that's where somewhat less less emphasis on the U. S. Equity market as well as again a greater emphasis at this time on high fixed income and global infrastructure we believe makes sense interesting. And I'm just curious how you're factoring in risks. Ali said that still exist like the pandemic, like some of the supply chain challenges that Apple may see for instance in other companies um emanating from actions in china as well as Russia's ongoing war in Ukraine, especially as we head into these winter months. To your point, there still is some ongoing risk of disruption we've certainly seen with various geopolitical events around the world or weather events or other kinds of uh just shocks that may come up that with everything that's happened there is more fragility right now to what may happen with supply chains again are based, this is what we see with um what's been going on with the economy and the markets is there has been adjustment over time as some of these uh supply disruptions have occurred, and so we are in a healing mode. But certainly we always must remain vigilant for, if you know, additional shocks could come to bear. All right, lisa Erickson, senior vice president and head of the Public Markets Group for U. S. Bank wealth management lisa, thank you so much.