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Market strategist on inflation: 'One data point does not make a trend'

PNC Asset Management Group Chief Investment Officer Amanda Agati joins Yahoo Finance Live to discuss market trends, July CPI report data, interest rate hikes, inflation, volatility, and the outlook for markets.

Video Transcript


BRAD SMITH: Welcome back, everyone. We've seen the markets in rally mode over the last few weeks as the latest economic data shows signs inflation might be cooling. But our first guest this morning says, we're not out of the woods just yet. For more, we bring in Amanda Agati who is the PNC Asset Management Group chief investment officer. Amanda, great to have you here with us this morning. All right, help us-- help us break this down in your perspective here, why we're not out of the woods just yet.

AMANDA AGATI: Well, it's always nice to be with you. Thanks for having me and good morning. I would just simply say that one data point does not make a trend by any means. And so the market really took the July CPI report as claiming victory that the peak is officially in.

And while that might very well be the case, the market has rallied an awful lot assuming that the Fed's forward guidance and ultimately, the terminal rate assigned by the current dot plot is really where policy is going to ultimately end. And so I think we need a bit more in terms of data points to confirm that officially the peak is in. I think over the next couple of months, we can certainly get confirmation of that, to the extent that CPI continues to move in the right direction.

But we don't have confirmation from the Fed and Fed governors across the board that really the guidance that they have laid out is really it. I think the Fed is very much fixated on needing to do more. And that's a very vague term. And so the key question is, how much more aggressive? How much more hawkish from here? If they go much more hawkishly than what the market has already priced in, I think that does create some downside risk, given where valuations are sitting today.

BRIAN SOZZI: Do you think we're overdue for a little bit of a pullback here?

AMANDA AGATI: I think it's possible, sure. You know, the market really wants to move higher. You can tell by the psyche, certainly of the market here over the last few weeks, that it's just fixated on trying to get past a lot of the macro challenges, and the concern around Fed guidance, and just grind higher here.

But I think over the balance of the summer, the high volatility regime is just gonna continue to dominate. I think things are gonna continue to be quite choppy until we get further confirmation of inflation peaking or rolling over, and some stability in terms of that Fed-forward guidance. It kind of all comes back to those two key variables.


AMANDA AGATI: So I think it is possible to see a little bit of a pullback here.

BRAD SMITH: So what would you think that the likelihood would be for what you've talked about as a, perhaps, Christmas wish for a Fed pause?

AMANDA AGATI: Well, it's no longer July but I'm going to stick with my corny joke that my Christmas wish-- or Christmas in July for me, certainly would be a Fed pause coming in December. The market's actually assuming a little bit over a 60% chance of a zero policy rate move in December, a.k.a. a Fed pause. And so for me, I'm still trying to figure out whether my Christmas wish is gonna be granted or I'm gonna end up with coal in my stocking.

But I think if we got that Fed pause, that would be really positive in terms of a catalyst to get this market rally re-engaged and set the stage for a much more positive 2023. So that's where we're focused. I think it's less, at the moment, about individual rate hikes between now and the end of the year. And much more about where that terminal rate is going to land and whether or not we get that Fed pause.

It doesn't matter from the market's perspective whether we get 50 basis points in September or 75. At the end of the day, the destination-- that final destination is kind of where the market has priced for. I think that's really good support for the market at these levels.

BRIAN SOZZI: Amanda, my Christmas gift-- or early Christmas gift is a couple of-- shoot some tequila I'll be having at happy hour tonight. I'm very excited about that. But look, you mentioned volatility in the markets. We're just seeing a lot of just wild swings, notably for companies that are losing money. What is triggering this?

AMANDA AGATI: Well, the high volatility regime has been absolutely a hallmark of this entire cycle since the onset of the pandemic. I keep saying hashtag, #HighVolatilityRegime, and everybody I talked to is like, when are you gonna retire that hashtag? [CHUCKLES] But I think, unfortunately, this dynamic is still gonna be with us well through the end of this year into 2023.

And I think it's much more a function of this market really struggling to assign value or price the perfect storm of macro headwinds that are swirling. And so when you see the companies that are really challenged from a fundamental perspective, those nonearners really see a lot of whipsawing here. I think it's a function of, what is the backdrop ultimately going to be?

And is it going to be supportive for the companies that are struggling the most here? Are we gonna end up with financial conditions and overly restrictive territory? We're not there yet. But I think the market is really struggling to price value and assign value in this kind of a fuzzy, perfect-storm backdrop we have here.

BRAD SMITH: How do you imagine that US companies might continue to see growth challenges, considering the annexation to or their reliance on revenues that may come in from EU countries as well? Which are already trying to weather their own set of economic uncertainty.

AMANDA AGATI: It's something that we're watching very, very closely. But I would say, just in general, US-based companies, even though they may be multinational companies, are absolutely the best positioned and best on the global block, if you will.

And so we think that US domestic equities, US exposures are going to be very well positioned to the extent that growth continues to slow on a relative basis. We think we're in better shape. That is corporate America has more room or margin for error, if you will, from a profitability perspective to kind of weather the storm here.

So definitely focused on the challenges in the EU. We don't see, you know, a meaningful reversing of course there and a snapback in terms of underlying fundamentals. But I think other parts of the global economy are really seeing some meaningful signs of strength. And I think that's enough to keep them powering through.

BRIAN SOZZI: Keep those investing hashtags coming, Amanda. I like them. Tweet them at me. I really enjoy it. Amanda Agati, PC Asset Management Group chief investment officer, have a great weekend.