If the market’s record rally continues into year end, PNC Financial’s Amanda Agati predicts value stocks will lag and growth stocks will play a dominant role.
Agati, the firm’s chief investment officer, blames a slowing economy and earnings — as well as the monetary and fiscal policy backdrop.
“We are absolutely bullish on the growth-oriented side of this equation,” she told CNBC’s “Trading Nation” on Monday. “There’s a lot of runway left.”
Agati, who has $183 billion in assets under management, believes investors will unquestionably pay up for growth stocks, which includes Big Tech. She expects the group to get a boost from a Federal Reserve which will likely hold rates steady for longer than Wall Street thinks.
“We’ll start to see supply chain disruptions settle down. We think the optics around inflation ratings year-over-year is going to settle down,” she said. “The consensus thinks that inflation is going to run so red hot that it’s going to force the Fed’s hand to both taper and raise rates earlier in 2022. We just don’t see that.”
And neither does the stock and fixed income markets, according to Agati.
“Usually, we’re arm wrestling between which one is the right signal,” Agati said. “Both sides of the equation are signaling that inflation is likely to be much more transitory in nature, and so you’re seeing the market price that in.”
Overall, Agati bullish on the broader market. However, she believes the next two months will get choppy due to policy uncertainty and a revved up rotation into growth.
“We’ve been cautioning our clients and investors to buckle up heading into year end,” she said. “Significantly, higher corporate tax rates and even significantly different changes on the personal side could definitely lead to putting the brakes on this market rally.”
But she suggests investors should not sit on their hands. Within the growth trade, Agati likes the Invesco QQQ Trust, an ETF which tracks the Nasdaq 100 and includes Apple, Google and Microsoft.
“On the Nasdaq 100, they just continue to put up really strong fundamental numbers, and we think that’s going to carry into 2022,” she said. “It’s not really a stay at home trade anymore. It’s just follow the tech, follow the innovation and follow the growth in a slightly slower growing world.”
Agati also sees opportunities in emerging markets.
“We’ve seen a fairly significant reset from a sentiment perspective in terms of emerging markets this year. But it hasn’t impacted the fundamental story,” Agati said. “We actually think on the EM side of the trade, the valuation story is really driving an attractive opportunity.”