(Yahoo!Finance) - There have been growing hopes that the Federal Reserve will be able raise rates enough to bring down inflation without sending the economy into a recession. PNC Asset Management Group Chief Investment officer Amanda Agati is in the soft landing camp, saying there will be a mild pullback.
On the broader market, Agati says, "the bond market's signaling a hard landing, so equity market's still delusional...equity market totally focused on no landing, the Fed is effectively pulling off mission impossible and getting inflation under control without tipping us into recession." Agati is recommending investors stay invested and lean towards "quality" investments.
SEANA SMITH: Many of the movement that we've seen in the bond markets yield, the 10-year yield surging last week, pulling back just a bit today, but still well above that 4% level. When you're looking at this from an investment perspective, the risk that this poses to equities, what is the bond market signaling at this point to you?
AMANDA AGATI: Bond market signaling a hard landing so equity market still delusional. I've been saying this all year-- technical term for you. Equity market, totally focused on no landing that the Fed is effectively pulling off mission impossible and getting inflation under control without tipping us into recession. Bond market telling a very different story. All of it is really aligning towards a harder landing, a.k.a. recessionary scenario.
And what we've seen in terms of short-term yields, it really shows up to us as kind of that bare steep inner in terms of the movement of yield curve. And that usually is one of the classic kind of final telltale signs of tipping into recession. So bond market is still very orderly, but I think very much lining up towards that recession looming large later this year.
DIANE KING HALL: So what's the playbook if there is a hard landing? I mean because you think about the perspective, it's not just so sure kind of caution may be out the window when it comes to equities. But there were indications that it may be a soft landing. And there are calls for a mild recession. What's the playbook just to balance all of this out because we don't know?
AMANDA AGATI: Well, we're in the soft landing camp, as I said. And so we define that as a down 1% to 2% in terms of GDP decline. So it's not the catastrophic recession that we saw in the financial crisis and certainly not at the onset of the pandemic. They don't all have to be that magnitude or that catastrophic in nature.
And so from our perspective, we're definitely running more of a defensive playbook. But what's different about this time is that we're encouraging our investors to stay very much invested, not pulling the report and raising a ton of cash.
We're trying to stay very well diversified, trying to focus on long-term strategic targets, lean very much into quality, both on the equity side of the equation and also in the fixed income markets, dialing back a lot of that below investment grade exposure.
Investors just aren't getting paid to take on that level of risk at these levels.
DIANE KING HALL: All right. We will continue to watch the space. Thank you, Amanda Agati, PNC Asset Management Group Chief Investment Officer. Thanks, Amanda.
By Seana Smith and Stephanie Mikulich
