The research firm whose AI paper knocked the whole stock market is out with another big call

• Van Geelen warns that 'if the war doesn't end, equities will go lower,' citing sustained oil strength from geopolitical tensions as a key risk to markets
• Citrini argues current interest rates near neutral levels would become restrictive enough to cause a slowdown if oil prices remain high, without the Fed needing to raise rates further
• The firm previously gained attention in February by warning the AI boom could push unemployment as high as 10% through white-collar job displacement

Summary

Citrini Research, the firm that shook markets with a bearish AI call in February, has issued a new warning that elevated oil prices could trigger an equity downturn. Founder James van Geelen argues that persistently high energy costs driven by Middle East geopolitical tensions will act as a "tax on growth," eroding consumer purchasing power and corporate earnings.

"If the war doesn't end, equities will go lower," van Geelen wrote in a Wednesday Substack post, citing ongoing conflict as the primary driver of sustained oil strength. While stocks recovered somewhat Wednesday on reports of U.S. ceasefire efforts, Tehran rejected the offer and tensions remain high over the Strait of Hormuz.

Key Thesis: Van Geelen contends that with policy rates already near neutral levels, elevated oil prices create restrictive financial conditions without requiring additional Fed action. Even maintaining current rates would be sufficiently restrictive as energy shocks filter through the economy, potentially causing a slowdown.

The firm challenges the bullish narrative that rate cuts would support equities, arguing any Fed easing would likely respond to deteriorating growth—a scenario historically associated with further stock declines rather than rallies. Van Geelen suggests the Fed will "look through" the oil shock before eventually cutting rates as conditions worsen, noting that "raising rates isn't going to magically make more oil supply."

Even if geopolitical tensions ease quickly, Citrini sees limited upside, as consumers would emerge "slightly weaker" after absorbing higher fuel costs.

Context: In February, Citrini previously warned that AI adoption could push unemployment to 10% through white-collar job displacement, establishing the firm's contrarian macro outlook.