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Agati believes that this uncertainty in the market leaves investors in a wait-and-see scenario. Agati notes that if the Fed maintains its current policy, markets could remain “directionless” until the end of 2023. With recession being a potential risk, Agati advises investors to “stay close to long-term strategic goals” and let the new year shake before making significant positioning changes.
In the wake of the “Turkey Rally” planned for Thanksgiving, Amanda Agati, CIO of PNC Asset Management, says markets have reached a “crossroads” in determining the next catalysts that will propel them higher. Even though stocks recovered from the lows of the correction without further tightening from the Fed recently, he struggles to identify the “significantly positive” and “significantly negative” catalysts within the market, telling Yahoo Finance, “I think what’s attractive right now is what’s the catalyst that needs to trigger to keep pace. “This market rally?”
Agati believes this market uncertainty leaves investors in a holding pattern. Agati notes if the Fed maintains its current policy stance, markets may remain “directionless” to close 2023. With a recession still a potential risk, Agati advises investors to “stay close to long-term strategic targets” and let the new year shake out before making significant positioning changes.
For more information and the latest market actions, click here to watch this full episode of Yahoo Finance Live.
RACHELLE AKUFFO: So, start by setting expectations. Given what has driven markets so far this year, what will set the tone for the rest of the year?
AMANDA AGATI: Well, it’s great to be with you. First of all, thank you very much for having me. I think we’re at a crossroads in terms of what’s going to happen next in the markets. It’s been a very strong uptick this year. I mean, we had an incident before this fall where we had a little correction, everything we expected.
But the market seemed to forget about it and continue to work its way here. So I think what’s interesting right now is what’s the catalyst that keeps this market rally going?Certainly, the lull we’re seeing lately is well-deserved. given the momentum the market has experienced during the year.
But with the Fed on the sidelines and not necessarily taking policy action, I think it’s difficult to take advantage of significant positive and negative catalysts. So I think what we’re left with is a somewhat volatile market between now and the end of the year. So we think we probably won’t see a Santa Claus drive materialize because we’ve already had this turkey drive.
AKIKO FUJITA: So there’s no Santa reunion. But it looks like we don’t see any major problems in the future. Is it time for investors to anticipate what they need the composition of their portfolio to be through 2024?
AMANDA AGATI: Yeah, I don’t see a lot of downside at the moment. That’s the challenge I mean, of course, the black swans, you know, you never see coming. So there could certainly be something that catalyzes a downdraft here.
But if the Fed stays put right now, we think the market will collapse and end up aimless. I think the market expects a rate cut of around 100 foundation issues or more early next year.
I would say no. We are not in the camp where we expect this kind of meaningful political change. But with this on the near-term horizon and markets starting to give value, it’s vital that investors start preparing for the New Year.
It’s kind of a nap, because we’ve been in de-risking mode all year looking to prepare for this long-awaited recession that didn’t materialize. We still believe that this will materialize and will be mild in nature. But I don’t think there’s a lot to prepare for investors who have already implemented this playbook. So it’s all about staying the course: staying close to long-term strategic goals and seeing what the new year brings.
RACHELLE AKUFFO: So, Amanda, what’s going to be the most productive indicator of when things are going to change?I mean, we’ve been in the VIX towards the beginning of 2020, at pre-pandemic levels. Much of this risk, at least for the markets, is out of position at the moment. At what point will this change?
AMANDA AGATI: I feel like a damaged record. But I’ve been saying for most of the last few years that the ultimate boost for markets is when the Fed leaves the helm. And the Federal Reserve has been in that position for a long time.
So if we start to get that indication that the Fed is going to act one way or another, up or down, I think that’s when the markets will start moving and waiting before we even see any policy action from the Fed.
I think in the earlier segment, you were talking about sort of the high volatility nature of Fed speak, right? We’ve been in a high volatility regime for markets. But the Fed speak has been pretty wide and volatile too. A lot of different views on what the next step is.
So, I think what’s vital is the political path forward. It is true that we are in very restrictive conditions. But we have not yet felt the full effects of all these policy measures. So we continue to focus on that, even if it seems like an unprecedented story, as it has been in recent years.