Gene Goldman, chief investment officer with Cetera, joined Cheddar News to discuss Tuesday's market drop after recent rallies.

Closing Bell

Stocks Drop Tuesday After Recent Rallies

Joining us now is Gene Goldman. He's the chief investment officer and director of research at cetera financial group. So jane, thanks so much for joining us here. What is your take on how today's markets wrapped up their sessions. Well, first of all, Michelle, thank you for having me on your show. Um This I think what we saw today was just what we've been expecting for a while. I think about this recent rally and stocks been up about 13 14% since october we kept telling our advisors and clients this rally does not have legs and there's three reasons why and we expected to pull back number one. The rally has not been confirmed by any cross asset moves. Oil was declining in january that 2 10 spread further inverted gold not performing well. Not really good signs of a market rally. Second of all really the market scenario du jour is today. No landing, which means grow, robust growth and earnings estimates are being met. This is not the case. This earnings season has been pretty lackluster. Fourth quarter earnings were modest. But earnings guidance and this is so important earnings guidance, 76% of companies issuing guidance actually issued negative guidance. Well about the five year average think about our firm like our firm's terror were privately held. We're not really focused on earnings guidance quarter the quarter, we're focusing the long term growth but we all know investors are so focused on short term growth. The third thing about the markets right now P. E. Multiples are still pretty high, not reflective of inflation and yields. If you think about this, the P. E ratio on the S and P 500 is about 18.3 on forward earnings does not really reflect where yields are so high and inflation is so high. Again, all of this together made sense for the markets to pull back and that's something we've been warning for a while now jean, I want to go back to something you said, you mentioned that you didn't feel that the market rally should have legs. What how do you think and investigators should navigate this especially with the pullback we're seeing right now I think to navigate this is you've got to take a step back and in terms of going back to fundamentals being diversified, being, you know, focusing on areas that have been a little bit underperforming. So for us our portfolios today we are a little overweight value versus growth given the higher inflation. We're also looking to have more exposure to small caps. And one key thing we're doing is in operating liquid alternatives, those investments that zig when the rest of the market is zagging. So you take all this together, diversification is the key. I know it's a very boring investment concept but it works long term it works and this is what we're focusing on. But with that said near term volatility is here for a while. We do expect a better second half of the year, especially as sentiment gets down on the potential recession. As earnings start to pull back, we'll have lowered expectations and as we all know, lowered expectations are easier to beat and this is good for the market. The market is a forward looking mechanism and the prices eventually. Now we know that the Fed meeting minutes are going to be released tomorrow and you have said that this is the most important data to watch. So what should investors be on the lookout for? Great, great point. So I know everyone's talking about PC later this week and PC should come down. Our focus is on the meeting minutes tomorrow because one thing we've coined at cetera is the Fed is very awkward. Their hawkish, they're raising rates but they're awkward in terms of their messaging. So three things we're looking for tomorrow. First of all, at Powell's last press conference, very much much of a mixed message. Remember he said we're not yet restrictive. More hikes are appropriate. But the disinflationary process has begun. That's the opposite number two, Powell continues to suggest they're focusing on one single data point. Core services excluding housing inflation really does that really make sense? Our other Fed members looking at just one data point. And third of all last week we learned that non Valerie's Bullard Mester supported raising rates by half a percent, not one quarter of 1% are other supporting this to we got to find this information out because this is going to be huge for market direction, and we'll get this tomorrow. Well, thanks so much to Gene Goldman, he's the chief investment officer and director of research at the Terror Financial Group.