By Jeremy Schwartz, CFA, Executive Vice President, Global Head of Research, WisdomTree
In a recent episode of the “Behind the Markets” podcast, I was joined by Gene Goldman, director of research and CIO of Cetera Investment Management.
Our discussion ranged from Goldman’s role at Cetera to recent trends in emerging markets and macro data that might portend a U.S. recession.
After graduating from an engineering school, Goldman switched into finance and pursued an MBA, but his engineering background provides a strong foundation for analyzing numbers and market trends.
Spending his early career working at two independent broker-dealer firms in Boston, Goldman then found his way to Cetera Investment Management.
Directing research while serving as CIO, Goldman believes Cetera’s strong value proposition stems from its 7,700 advisors and its $250 billion of assets under advisement.
Cetera provides an extensive network of tools that allows the team to be proactive in helping clients reach their long-term financial goals.
It emphasizes financial planning when formulating investment strategy, and from there Goldman’s team offers research on the markets, portfolio optimization and security analysis.
Goldman describes Cetera’s general economic sentiment as “cautiously optimistic,” mentioning that despite the correction last December it remains confident there will not be a trade war, an upcoming recession or further rate hikes in 2019.
With the S&P 500 up 13% when we had our discussion, Goldman sees all of those factors being entirely priced into the market, and he is interested to see what forces will drive it going forward.
Goldman sees few forces to push the market forward in 2019, coupled by 3% expected earnings growth, weak manufacturing and consumer data reports and weakening auto and housing markets.
Goldman is thus keeping a close eye on recession indicators. Traditionally, surges in oil prices and large amounts of corporate debt have sent the economy down.
Goldman notes, however, that oil prices have been down year-over-year while his corporate debt indicators are below their long-term averages.
In current market conditions, Goldman likes that the U.S. market has decoupled from weaker global markets and is ratcheting down growth exposure by getting out of sectors analogous with growth.
In fixed income, Cetera is generally under-weight in credit as it doesn’t believe the narrow spreads justify the risk. Likewise, the recent flattening of the yield curve and subsequent inversion between the 3-Month bill and 10-Year bond leaves no incentive for duration. This has led Cetera into U.S. Treasuries.
On a global front, Goldman believes the issues with the markets, economies and demographics in both China and the U.S. will force a trade agreement.
In an attempt to diversify, he likes developed global markets such as the EU and Japan because the negative performance and outlook are already priced in. This has led to undervaluation of the more promising sectors in Europe and Japan.
Goldman is hesitant about emerging markets, noting the belief that the positive performance of many emerging economies is a result of their status as an input to the Chinese economy.
Furthermore, emerging markets’ high vulnerability to a strong U.S. dollar is worrisome, and Cetera prefers active strategies that can navigate around these risks. This was a great conversation with Goldman; please listen to the full discussion below.
Disclosure: Certain of the information contained in this article is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. WisdomTree believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
About the Author: Jeremy Schwartz, CFA, Director of Research, WisdomTree Asset Management is responsible for the WisdomTree equity index construction process and oversees research across the WisdomTree family. Prior to joining WisdomTree, Jeremy was Professor Jeremy Siegel’s head research assistant and helped with the research and writing of Stocks for the Long Run and The Future for Investors. He is also co-author of the Financial Analysts Journal paper “What Happened to the Original Stocks in the S&P 500?” Jeremy is a graduate of The Wharton School of the University of Pennsylvania and currently stays involved with Wharton by hosting the Wharton Business Radio program “Behind the Markets” on SiriusXM 111.