Like a Blown Lead: Goldman's Cautious Market Warning

0:00Welcome in our next guest. Joining us now is Gene Goldman. Gene is the chief investment officer at Citerra. Good morning to you Gene. Good to see you again. Happy Thursday. I want to get your thoughts here just generally on the on the broader market, broader macro pictures. We kind of close maybe this first full week of September tomorrow. We'll get some more inflation data kind of what you're thinking about going into the weekend. For first of all it's great to see you again. Hey Alex listen I'm not bearish right now. I'm just a little cautious about up here at these levels. So let me start with a little bit of analogy. I'm a Patriots fan. Last night my Patriots blew a 10 nothing lead to Seattle. And that's really the stock market in 2026. A good start that can unravel fast if you turn the ball over due to oil rates or the Fed. So if you turn this into what we're seeing in the markets the Middle East risk went from uncertainty to an extended war. Oil is over a hundred dollars per barrel. The 10 year treasury yield is near 5%. Sustained oil could add something like

1:02half a point to inflation to headline inflation. And if you think about the Fed's June projections they already marked up inflation from 2.7 to 3.6%. Now we have a fresh upside risk before next week's meetings. Then if you're Worsh this is a really bad set up for Worsh because he really has to think about how is he going to hike rates. The hiking rates are not going to fix a supply shock. So he stuck between looking too easy on inflation or hurting economic growth about solving the actual problem. And we have a spillover effect. We're seeing yields being pushed higher which of course as we all know pressures and already expensive stock market. So you think about this here's the chain. You've got oil feeding inflation. Inflation feeds the Fed policy. Fed policy is what equity multiples are priced on. This chain is not hypothetical. It is live right now. And where we're watching overall just this duration of a hundred dollars per oil. You know if a hundred dollars per oil stays as a short spike it's just noise. But if it extends for a very long time for months this is going to be pretty worrisome. All right. I got a question for you. So first off

2:04I totally agree with how you're kind of framing this which is basically look this is supply issue. And if you got a blunt tool at the Fed and that tool impacts the demand equation the only way to get those in balance if your short supply is the bring down demand. Doesn't seem like a super fun decision to make if you're the Fed. And who knows even if it would be all that successful a lot of the other inflation is driven perhaps by the tremendous spending from the AI build out. Uncleared to me how raising rates is going to stop that from taking place. But Gina got to ask you you know when you look at oil and you look at it historically and it spikes. It tends to have its own sort of stifling impact on demand. It's not really a productive way for us to spend money. Look I got a drive no matter what I'm going to have to go fill that up whether it's four dollars a gallon or three dollars a gallon. I need the same amount of fuel. That's just money that can't be spent elsewhere. In a way I know it doesn't pull more oil out of the ground. But doesn't it stifle demand on its own without raising

3:08interest rates. Definitely definitely definitely you know as we all know it's just higher oil higher energy higher costs are going to definitely pressure down demand. That's why we do think the Fed raises rates next week. You know right now there's a 60% chance of federal raise because I can't raise in October it's too close to midterms. December is too far away. But we do feel this pressure with the fed raising rates with the economy being resilient and okay and with consumers spending starting to kind of be a little choppy the Fed is likely going to need to cut rates late next year as the higher rates do put a pressure on the overall economy. Alright so when we go to next week though give and everything that we've discussed are you anticipating 25 basis points as it stands right now I think tomorrow have a lot to say about it but if you had to lean one way or the other do you think that they have a you know is it still a coin flip or you lean in one way? It's I think it's more than a coin flip. I think before Jackson Hole it was almost a non-non-effect after Jackson Hole after this PPI this morning this PPI. I know your previous guests talked about PPI I mean just think about that diesel up 25% goes prices up 1.1%

4:13transportation frail 2% I do think if we when once we get CPI number tomorrow which I think it could be a little bit stronger than expected given AI spend given the surge we've seen in ISM prices paid I do think the Fed is as hot for next week and it's gonna need to raise rates. Alright last question for you I mean use your own words or not bearish or just cautious for maybe a viewer who echoes that sentiment and is thinking about well how do I position for that feeling what kind of I got you raise it a little bit of cash for opportunity is their hedging taking place changes in asset allocation how you approach in that. So and thank you for that saying me up I think that's a great question because listen we're not bearish we're just a little cautious we do expect any pullback to be pretty short-lived because fundamentals are solid there's a lot of cash on the sidelines market breath is pretty healthy right now and volatility spikes in a growing economy to be a little short-lived so what's it mean to investing again stay anchored don't react to headlines maintain your

5:15target asset allocations use pullback as we continue to tell our advisers and their clients rebalance instead of chasing winners you know therefore what does this mean you know be asset allocated be diversified we are specifically overweight the US especially small caps and mid caps were underweight non-US and our biggest and our best and our most favorite bet right now is that we are increasing duration in this yield environment we think the 10-year treasure is closer to the top than it is to the bottom we are taking advantage of this opportunity to be paid in terms of buying yield right now. There's a lot of interesting stats too that I'm sure if people who are interested they look up kind of on the total return aspect of the long end of the curve at rates like this because say rates go down for whatever reason you get the price appreciation component to but Jean it's always a pleasure hope you have a great rest your day and appreciate the insight Jean Goldman Chief Investment Officer at Cetera