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Equity investors are delusional if they expect a “no landing” scenario, says Amanda Agati of PNC.
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The Fed can’t beat inflation without triggering a recession, says the bank’s lead investor.
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Agati points to the inverted yield curve as a warning sign that an economic downturn is imminent.
Equity investors dream of a no-landing scenario in which the Federal Reserve reins in price growth without undermining the economy. They could face a harsh reality check soon, a strategist warned.
“The stock market is still illusory,” PNC Asset Management Group lead investor Amanda Agati told Yahoo Finance on Tuesday. It’s “entirely focused on no landing — the Fed basically succeeding in completing the Mission Impossible and controlling inflation without plunging us into a recession,” she continued.
The S&P 500 and Nasdaq Composite are up 14% and 29% respectively this year as investors bet on a booming US economy and an artificial intelligence boom. Yet the bond market tells “an entirely different story,” Agati noted.
Short-term government bonds offer significantly higher yields than long-term government bonds, indicating that investors expect the Fed to cut interest rates in the coming years, which the central bank typically does in response to a recession. An inverted yield curve has been a reliable indicator of past recessions, Agati said.
The bond market “is broadly lined up for the recession that will be big later this year,” she added. However, the strategist noted that her team expects only a small drop in US GDP, between 1% and 2%.
“It’s not the catastrophic recession we saw during the financial crisis, and certainly not at the onset of the pandemic,” she said.
Agati also explained how investors can navigate the difficult market environment. She advised them to maintain a diversified portfolio, focus on achieving long-term goals, and look for higher quality stocks and bonds.
Read the original article on Business Insider
