From AI Layoffs to Oil Disruptions: The Economic Risks Investors Can’t Ignore

We are seeing a rally on Wall Street with the Dow, Nasdaq and S&P 500 all higher by at least 1%.

We continue to monitor the conflict in the Middle East and we are looking at oil prices pulling back slightly.

Well joining me on this Monday morning is Jeff Gitterman, managing director at Gitterman Asset Management.

Jeff, good morning.

Thank you so much for joining me.

Thanks for having me.

While the conflict in the Middle East continues.

And we are paying close attention to the politics of the situation, but we are seeing a rally on Wall Street.

So what should investors out there be thinking about when it comes to their portfolios?

I think the important thing is don't get too freaked out by the rallies or the dips right now because this thing could turn around quickly.

I think the biggest risk we have right now is stagflation, and that is that.

We've got problems with fertilizer getting through the Strait of Hormuz and we've got problems with oil getting through.

Both can significantly drive up inflation.

At the same time, we have AI driving layoffs which drives unemployment.

In stag inflation is basically high inflation with higher unemployment.

That is one of the worst case economic scenarios that we can have.

So I think people should pay really close attention to that.

We're owning a lot of short term fixed income because we're worried about interest rates going up.

Our off-ramp of lowering interest rates is pretty much off the table right now with oil prices higher, mortgage rates are higher, the 10 year is higher, so we're dealing with higher interest rates.

The Fed cuts not going to happen while we're dealing with these inflation issues, so it's a time to be cautious.

I wouldn't say go to.

Cash because cash isn't earning much these days, but short term fixed income, some hedges like gold, energy transition, sustainable infrastructure, water, things that we've talked about lots of times that are defensive in nature, but AI is still driving the investment themes in those areas regardless of overall markets.

And speaking of AI, we know that Nvidia is a conference.

So we'll be paying close attention to that.

But at the same time, the big event this week is the Federal Reserve two day meeting.

We're all listening to what Powell says in his presser and how he's addressing these concerns regarding the US economy.

But given all this volatility that you mentioned across all asset classes, commodities, bonds, FX, as well as equities, where do you think the opportunities are right now and why?

I think we still have an opportunity in gold because of this inflation hedge and the volatility.

Golds pulled back from its high of $5500 down to about $5000 again.

So your metals gold, silver, copper still looking attractive right now.

So we're at a 30% pullback after early in the year.

And again, water infrastructure, these defensive plays are really good right now.

You saw last time on the video earnings they blew it out of the water and still the stock went down.

I think this is this idea of greater has got to be greater each time and it's hard to live up to those, so I think the Max 7 is the place to be cautious right now.

I think broader market exposure is much more viable at this point, but definitely things that work in an inflationary environment and things that are working because of AI, but not the AI companies themselves, all the energy and water and everything else, the grid infrastructure that we need to keep fighting this AI.

Other war that we're fighting, we're fighting, you know, multiple wars right now unfortunately, but AI is one of them.

Iran is the other one.

Yes, and we have about 60 seconds here, so I'm sure you're having plenty of conversations with clients as well as stakeholders.

So if we take a step back and look at this big picture, how does this change your base case and what are you talking about right now?

Why?

We're always talking about what is your risk tolerance.

Can you afford 20%. drops in the market.

If you can't afford a 20% drop in the market, then you shouldn't be in an aggressive portfolio.

So really thinking about in any scenario, what is your worst case scenario downside and can you stomach that?

Can you live through that?

Can you not be afraid and take all of a sudden a jump off ramp because the markets are down a little bit.

We like to say that the markets are a roller coaster.

The investment vehicles that you buy are the car on the roller coaster.

A financial advisor is the safety belt that keeps you from jumping out of the roller coaster when it's screaming downhill.

Make sure your appropriate is right for all scenarios.

OK, Jeff, some sage words there.

So thank you so much for joining us as we kick off a new trading week.

Thanks for having me.