Pro: ‘mania around retail trading activity is going to start to fade’

PNC Financial (NYSE: PNC) Chief Investment Officer Amanda Agati has predicted a downfall to the retail stock trading frenzy once stimulus packages stop. She said that when the government starts doing away with stimulus policies meant to cushion Americans against the impact of the pandemic, retail investors will be adamant about putting more capital to work.

Eliminating stimulus policies could result in a market pullback

Amanda Agati told CNBC’s “Trading Nation”:

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

“As we start to see this fiscal cliff appear on the near-term horizon, let’s call it in September-ish and [as] the extended unemployment benefits are starting to roll off, I do think that mania around retail trading activity is going to start to fade.”

According to Agati, the effect of eliminating stimulus will tip the market into a pullback of between 5% and 10%.  In early June, she told Trading Nation that people should brace for larger than anticipated price swings. Her prediction is attributed to doing away with stimulus policies, Federal Reserve taper chatter, and high valuations. She said:

“We have to be really realistic about how far and how fast the market has rallied and how far valuations have moved. The valuation backdrop is stretched by all standards: historical averages and otherwise.”

On Wednesday, the Dow dropped 0.92% or 324 points, with the S&P 500 also dropping $0.46. However, the tech-heavy Nasdaq had a rough day bouncing between positive and negative territory but ended the day with a 0.13% gain.

Agati warns COVID-19 variants could play a role in the correction

Agati stated that the rally is almost over and settling down. Also, among the correctional risk she cited are the slowing growth in earnings and COVID variants.  Because of the concerns, her top play is looking abroad to emerging markets. She added:

“The key to the path forward certainly is earnings growth and positive revisions. We are starting to see some slowing in terms of revisions for 2022. So, the key to keeping the market rally fueled is not just meeting this high bar in terms of earnings growth, it’s exceeding it by a wide margin.”

Interestingly she is not allowing the uncertainty from Chinese regulators targeting Chinese firms listed in the US to derail the plan. According to Agati, the tensions are mainly a sentiment issue. Agati stated:

“The earnings growth backdrop is also very strong. That relative valuation spread versus the developed world is really attractive here.”