From Tariff Tantrums to an AI Bubble: 6 Questions on Advisors’ Minds

Gene Goldman, Cetera’s chief investment officer, discusses the markets and investing throughout the year to clients and the broker/dealer's network of more than 9,000 financial advisors.

Below are six of the most pressing questions the CIO has received in recent weeks from the firm’s top advisors.

The following has been edited for length and clarity.

1. The stock market has been facing a lot of volatility and challenges, particularly due to U.S. tariff policy. Where do you think the market will end this year?

Goldman: Simply put, I’m very optimistic that stocks will be higher at year-end than they are right now. It’s true that the markets are very jittery, and there is going to be a lot of near-term volatility because of tariff uncertainty.

But first, I think valuations are much better than they were at the beginning of the year. The PE (price-to-earnings) ratio on the S&P 500 on forward earnings was at 22.5. Then, we got it down to the high seventeens, and now we’re back up to 20. But still, valuations are a little bit more attractive.

Second, I don’t see a recession any time soon. The economic data continues to be much stronger than anticipated. You know, data will definitely weaken. But the good news is that the data is coming off of a more solid base. I also think tariff revenue will be recycled into the economy via tax cuts.

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The third reason equities will finish higher is that I think the U.S. has a clear trade war advantage over other countries, especially China. I know China has advantages. They have access to rare earth minerals. They control supply chains for consumer goods. But at the end of the day, with 70% of GDP being consumption, whereas in China it's like 55%, they need us as consumers more than we need them.

2. Inflation recently came lower than expected. Aren’t tariffs supposed to add to inflation, and therefore create a risk to consumer spending and the larger economy?

Goldman: I keep telling our advisors, yes, there’s going to be a lot of inflation. It’s just that tariffs are deflationary at first. Because prices go higher, they reduce demand, and that creates deflation. Also, with tariffs, you see economically sensitive commodities like oil, like copper, all start to weaken.

A good rule of thumb is that the worst-case scenario for the impact of tariffs on our economy is about 10%.

Let's just say, for example, the effect of tariff rates is between 17% and 20%. That would suggest that inflation rises between 1% and 2% this year, and GDP will decline or be impacted by 1% to 2%. That’s the stagflation story—growth slows down, and inflation rises a bit. That’s the worst-case scenario.

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But we think, slowly, slowly, slowly, some of these negotiations will get pushed through and the tariff rate will come down.

3. What is the expectation for further rate cuts in 2025?

Goldman: Another reason there is the likelihood of near-term volatility is that I think the Fed is going to be one and done with rate cuts. Maybe even less than that—maybe not at all.

If you listen to (Fed Chair) Jay Powell’s speeches lately, he continues to say that the Fed will likely be more reactive than preemptive, and they’re really focusing more on inflation than economic weakness.

4. There has been a lot of talk lately about the sell-off in 10-year treasurys, partly due to deficit concerns. Are you concerned?

Goldman: My base case is that [10-year treasury yields] stay between 4% and 5% for the foreseeable future.

I think what you worry about is that decreased issuance of debt could put upward pressure on longer-term yields. But if you think about this, back in 2023 Janet Yellen saw this, came out and issued more debt on the short-term side as opposed to the long-term side. I think we could see something similar coming out of the Treasury this time. Also, we can see quantitative easing come back into play.

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Also, there’s still significant demand for treasuries. We’ve only seen nine weeks of outflows in the last 52 weeks. There are still people buying bonds.

5. Are bonds a good fit for portfolios to mitigate risk when money market accounts, CDs and Tbills are still paying 3+% interest? Also, are you concerned about the value of the dollar?

Goldman: I think bonds still make sense. I would be a little bit leery of high yield, especially with high yield spreads widening a bit and the uncertainty about the economy. But I do think treasurys are a pretty good opportunity, especially with the dollar being so weak right now.

I do think the dollar bounces back. We always have to talk our advisors and clients off the ledge—the dollar is fine. We have such a regulated financial market system. We’re not going anywhere. I do think if the dollar does reverse, as it should in a tariff-imposed economy, that helps to create demand for our treasuries.

6. AI is the latest “hot trend” in investing. Is there risk of a bubble?

Goldman: For any investment, there are three facets. There are fundamentals, valuations and technicals.

On technicals, we can kind of throw them away on AI right now.

But I think fundamentals are important. We are in a data revolution. I think AI is like electricity back in the 1890s. It’s going to be much bigger than we think; we just don’t know how big it’s going to be.

If you think about any type of cycle, especially technology, stage one is semiconductors. You need to power it. Stage two are the applications and stage three is just the use of it increasing. I think we’re going from the semiconductor perspective now to the applications. So the fundamentals are very strong.

Valuations have been expensive. They were really expensive coming into Liberation Day, but they have gotten a lot cheaper. If you look at my favorite sectors pre-sell off, they were healthcare, financials and industrials. Now, given the uncertainty in Washington, I’ve sort of replaced healthcare with technology and AI because that’s the future.