Major indices may start the month in rally mode, but PNC Financial’s Amanda Agati sees problems under the hood.
She believes the rotation into economically sensitive market groups from stay-at-home games is exaggerated.
“The value side of the equation – that ‘outside of trade’ – has really moved too far and too fast for us to be in this reopening phase,” the company’s managing director and chief investment strategist told CNBC’s “Trading.” Nation “” Mondays.
Agati notes that the move to value stocks gained momentum for the first time in November amid optimism about the effectiveness of the Pfizer vaccine.
“We saw this massive change in sentiment,” said Agati. “But in the end we didn’t really see that the underlying fundamentals improved much.”
Within the U.S. stock market, she’d rather be the 2020 winner: the growth stocks that stay at home, including big tech.
“They continue to deliver impressive results from a profit growth perspective and only for reasons of overall profitability and underlying fundamentals,” she added. “Although we’ve seen a pretty significant recovery in valuations there, I think that, in the longer term, from our point of view, we will assume that we will continue to find ourselves in a world with a lack of growth and earnings. And what wins in this environment? Many of them Components of the stay-at-home trade. “
Aside from the strong market performance on Monday, fluctuations in inflation have put pressure on growth in recent weeks. The group is particularly vulnerable to rising government bond yields as it affects valuations.
But Agati believes inflation concerns are temporary.
“We’re basically looking at the next three months to record no activity – not just a low, but no activity as a function of the locks,” she said. “Of course you will start to see CPI [Consumer Price Index] creep higher and inflation expectations rise. “
Agati cites higher prices for lumber, health care and childcare as examples of inflation that have already hit the market.
“This is not the kind of thing that is likely to pose a long-term risk to economic recovery,” she added.
Agati, who manages $ 170 billion in assets for the company, believes the risk of higher taxes later this year will set a blow to inflation.
“The moment the tax hike story comes back into play, we believe this will slow things down and calm things down a bit in the bond market,” said Agati.
But it’s also an issue that would challenge stocks.
“It will certainly hold back the stock market in terms of earnings growth trajectory as well,” said Agati.
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