Stocks are near all-time highs and the US economy is chugging again. That might as well be as possible on Wall Street.
Amanda Agati, chief investment officer of PNC Financial Services Group, says all signs are pointing to “peak growth” right now.
“We see it in a number of economic indicators that we continue to track,” Agati told CNBC’s “Trading Nation” on Friday.
She gives four reasons for this. The first inflation – producer prices rose 8.3% YoY in August, a record annual increase. Agati says this fiery pace will likely prove temporary, but rising prices will remain.
Agati also points to economic data such as GDP growth and production numbers that could be revised downwards; Sentiment indicators such as the University of Michigan Consumer Sentiment Index, which has not returned to pre-pandemic levels; and earnings growth estimates, which can also be re-evaluated.
“If we look at all of this together, they all converge on this similar issue that is at its peak, near peak, or past peak in terms of growth,” Agati said.
But that doesn’t mean panic, nor does it warrant major changes to how investors allocate funds, she says.
“It’s really more of a ‘slow your roll’ environment as we’ve been at such a breakneck pace in terms of this market rally from the bottom of the pandemic over the past year,” she said. “This is much more of a reorganization of investor expectations about what the way forward could bring.”
Since hitting a pandemic low in March 2020, the S&P 500 has risen 104%. It’s less than 2% off the records set earlier this month. The benchmark index is also trading at 21x forward earnings, rebounding from a 13x forward multiple 18 months ago.
“The only attempt is to be really realistic about how far and how quickly the market has recovered and how far the valuations are really on a broad front, which leaves the market relatively little scope in the short term to pave this way further up.” , she said .
Investors should also be on the lookout for a potential “textbook revision” that would see stocks decline at least 10%, she added, which would be “natural healthy market behavior and behavior.”
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