August jobs data won't be enough to 'force the Fed's hand'

Thu, Sep 5, 2024, 2:06 PM

Markets (^DJI, ^IXIC, ^GSPC) are anticipating the Federal Reserve to start cutting interest rates in mid-September, with opinions divided between a 50 and 25 basis point reduction. PNC Asset Management Group CIO Amanda Agati joins Market Domination to discuss market outlooks ahead of the increasingly crucial August jobs report to be released Friday morning, which could influence the Fed's decision.

Agati notes that data "naturally comes in very mixed" as markets approach a cutting cycle. She maintains that markets are "still very much in a soft landing camp," and no data so far has indicated a need for a 50 basis point cut in September. Agati believes a 25 basis point cut will suffice to boost the economy.

Regarding stock markets and investing strategies amid market uncertainty, Agati tells Yahoo Finance:

"This market is priced to perfection, and so there are pockets of opportunity. We're very much leaning into quality, on both the equity and fixed income side of the equation. Not everything has rallied to the extent of the Magnificent Seven, so there are pockets of opportunity. It's not a market where you want to sit on the sidelines with a ton of cash here. But it is hard to make really big practical moves ahead of some of the key news items that I think are coming over the next few months."

00:00 Speaker A

All right. Well, for more on the latest market moves, let's welcome in now, Amanda Agati, PNC Asset Management Group, chief investment officer. Amanda, it's good to see you. So we were just talking about this economic data. Amanda, we're trying to make sense of it. Different puts and takes. I'm interested to get your take on that economic data and what what do you think the Fed makes of it as well?

00:20 Amanda Agati

Well, it's great to be with you both. Thanks so much for having me. I mean, I would simply say it's late innings of the cycle and data naturally comes in very mixed. And so we are getting mixed signals and it is certainly making the call on soft landing, you know, mild recession, whatever the case might be, just harder. And I think it just makes the Fed's job harder. We're still very much in a soft landing camp. The sky is not falling based on the trends in the data that we're seeing, but a few kind of blips and a few outliers, but nothing that we're looking at suggests that the Fed needs to go 50 basis points. We think 25 is the right kind of first move with the caveat that we'll see what happens with the jobs report tomorrow. If that's a train wreck for some reason, we might revisit that. But, but all all told, it feels like 25 is the right next step for the Fed to take action.

01:36 Julie Hyman

Hey, Amanda. Julie. It's good to see you. So I guess what would qualify as a train wreck? What what's, you know, what what is that number? 114, um, for the last report was seen as a disaster. That combined, of course, with the other factors. We've talked a lot about the yen, etc. But what would be that number? What's the threshold for you?

02:11 Amanda Agati

I don't know if I can give you a specific number or threshold. I think this is really very much an expectations game. And so to the extent that, you know, the report comes in materially different from what expectations have been sort of reset to consensus, um, you know, I think that could catalyze a different kind of market reaction. But I don't know that it's enough. Just one data point is never enough to make a trend. And I don't think one data point is enough to force the Fed's hand. They are clearly very much focused on jobs more so than inflation. So it is an important data point, but it is still just one data point.

03:04 Speaker A

And, Amanda, we can talk about the economic data points. I just want to get your take on earnings, corporate profit growth. Amanda, what do you expect in the quarters ahead?

03:16 Amanda Agati

So I would love to say that it's rosy and optimistic because we're just exiting the earnings recession coming out of Q2 earning season. In a math that means positive earnings growth with or without the magnificent seven. And so it had been the first quarter in like the last six or seven where we were still very much under the gun from an earnings recession perspective. Q3 is not looking so great. We've had some pretty significant negative revisions already. And, you know, expectations for Q3 are kind of grinding to 2% or even zero. That's, I don't mean to be overly bearish, but it's not particularly exciting given that equities are still very much priced to perfection. So it's definite, we always say this, but I think Q3 earning season is definitely going to be pivotal in terms of what the market rally looks like from here.

04:23 Julie Hyman

So, Amanda, you don't sound super bullish here. So what what do you do with stocks?

04:34 Amanda Agati

Well, we're not sitting on the sidelines. So that's why I said, I don't want to sound overly bearish. I just, I'm trying to be pretty realistic about late innings, slow growth environment, slowing earnings growth backdrop, a big election looming, you know, potential some for some major policy changes. This market is priced to perfection. And so there are pockets of opportunity. We're very much leaning into quality on both the equity and fixed income side of the equation. Not everything has rallied to the extent that the magnificent seven have. So there are pockets of opportunity. I, it's not a market where you want to sit on the sidelines with a ton of cash here, but it is hard to make really big tactical moves ahead of some of the key news items that I think are coming over the next few months.