Gene Goldman, the Chief Investment Officer at Cetera, shares insights on market trends and investment strategies for clients and the network of over 9,000 financial advisors.
Below are six critical questions posed to the CIO recently by top advisors in the firm.
This content has been condensed for brevity and clarity.
Market Volatility and Year-End Stock Projections
1. The stock market has been experiencing significant volatility, mainly due to U.S. tariff policies. What are your projections for the market’s year-end performance?
Goldman: I remain hopeful that stock prices will be higher by the end of the year. Despite current market jitters and anticipated short-term volatility tied to tariff uncertainties, valuations appear more appealing than at the start of the year. The S&P 500’s price-to-earnings ratio has improved, suggesting better valuation conditions.
Impact of Tariffs on Inflation
2. Given that inflation has recently fallen below expectations, how do tariffs factor into consumer spending and economic health?
Goldman: I caution advisors that while inflation will rise, tariffs initially exert a deflationary effect by increasing prices, reducing demand, and subsequently lowering commodity prices. The significant worst-case economic impact from tariffs is estimated around 10%, suggesting a potential inflation rise of 1% to 2% alongside a similar decline in GDP.
Future of Interest Rates and Fed Policies
3. What are expectations concerning future rate cuts in 2025?
Goldman: I foresee near-term volatility stemming from the Fed possibly enacting just one rate cut or none at all. Fed Chair Jay Powell has indicated a more reactive approach, prioritizing inflation control over economic weakness.
Concerns Over Treasury Yields
4. With recent sell-offs in 10-year treasuries, are there any concerns?
Goldman: It is likely that 10-year treasury yields will stabilize between 4% and 5%. Concerns primarily arise from reduced debt issuance, which may drive longer-term yields higher. Yet, significant demand for treasuries remains, with limited outflows observed over the past year.
Bonds and Dollar Value in Investment Portfolios
5. Are bonds a suitable choice for risk mitigation in portfolios, especially with attractive interest rates from money market accounts and CDs? Are you worried about the dollar’s value?
Goldman: Bonds still have merit in portfolios, particularly treasuries, despite some caution regarding high-yield bonds. While the dollar may appear weak, I believe it will recover, serving as a stabilizing factor for treasury demand.
The AI Investment Trend and Market Risks
6. With AI becoming a prominent trend in investing, is there a risk of a bubble?
Goldman: When assessing investments, it’s essential to consider fundamentals, valuations, and technicals. Although technical analysis may not favor AI currently, the fundamental aspects are robust. AI represents a transformative wave, reminiscent of the electricity revolution in the 1890s, indicating it could be significantly impactful in the long term.
