Amanda Agati of PNC Financial predicts the demise of the retail craze.
If the government starts scrapping stimulus measures designed to help the nation weather the pandemic, the company’s chief investment officer believes retail investors will be reluctant to put new money into work.
“When we see this fiscal cliff popping up in the near future, we’ll call it September and [as] the extended unemployment benefits are starting to roll in, I think the mania about retail activities will subside, ”she said on CNBC’s Trading Nation on Wednesday.
The impact could help plunge the highly valued market into a 5% to 10% retreat, according to Agati.
“We have to be really realistic”
“We have to be really realistic about how far and how quickly the market has recovered and how far valuations have moved,” she said. “The evaluation background is stretched by all standards: historical averages and others.”
On “Trading Nation” at the beginning of June, she recommended that you be prepared for greater than normal price fluctuations. Agati attributed the forecast to high valuations, the chatter of the US Federal Reserve and the abolition of economic policy.
The Dow fell 324 points, or 0.92%, on Wednesday. The S&P 500 also struggled, losing 0.46%. The tech-heavy Nasdaq, which hovered between negative and positive territory, ended the day up 0.13%.
“We started to see that this rally is a little exhausted here and is settling down,” said Agati.
Agati also lists Covid-19 variants and slower earnings growth as the biggest corrective risks.
“The key to moving forward is certainly earnings growth and positive revisions,” she said. “We are seeing some slowdown in the revisions for 2022. So the key to sustaining the market rally is not only to meet that high bar for earnings growth, but to exceed it by far.”
Because of the concerns, Agati’s main objective is to look overseas to emerging markets.
“I feel a bit like a broken record as this was really a story for us during the course of 2021,” said Agati. “It really is the brightest star in the equity asset class universe.”
It does not allow tensions over Beijing regulators targeting US-listed Chinese companies to derail the strategy. Agati sees the uncertainty mainly as a mood overhang.
“The background to earnings growth is also very strong,” said Agati. “This relative valuation spread compared to the industrialized countries is really attractive here.”
The iShares MSCI Emerging Markets ETF, which tracks the space, was down 4.2% last month. So far this year it’s up 1.5%.
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