Amanda Agati, Financial Chief Investment Officer at PNC, says markets face fiscal uncertainty, not Fed risk. She advises focusing on quality cyclicals and sees bond signals as bearish on debt, not growth.

Amanda Agati, Chief Investment Officer at PNC, stated that current market risks are driven more by fiscal policy uncertainty, particularly around tariffs and government debt, rather than Federal Reserve decisions. She noted that while the Fed is expected to maintain a dovish stance, the main issue for markets is the lack of clarity on fiscal matters, which she described as a 'purple haze.'

Agati pointed to signals from the bond market, especially rising long-term yields and a weakening dollar, as indicators of concern over deficits and debt rather than economic growth. She recommended that investors focus on quality cyclical sectors such as financials and industrials, which are expected to perform well, and emphasized that current conditions do not warrant de-risking or increasing cash positions.

Agati: Purple haze of fiscal policy uncertainty is back in effect

All right, so we're getting a flurry of tariff proposals from the president. We had Howard Lettnick on our air yesterday, also talking about potential progress when it comes to moves with the EU. What does this all mean for the market and also for the Fed? Does it change the math at all when it comes to your thesis when it comes to the market? So it doesn't change our math at all as it relates to Fed policy and the path forward for rate cuts. We're still believing as the Fed continues to push that there's dovish forward guidance and a more accommodative stance to come. So we do believe eventually we're going to get more rate cuts. But the data doesn't suggest that the Fed needs to do anything at this point which I think aligns very much with our view. The key for the market is not so much Fed rate cuts. It's much more about getting clarity out of what I continue to describe as the purple haze of fiscal policy uncertainty. As you said it the purple haze is fully back in effect this week with a lot of the tariff headlines that are being announced. All right. Right now futures they're kind of a bit muted but we have to remember the markets are sitting very close to all time highs. We're talking about the S&P at the Nasdaq. But you're also looking at the bond market the long bond the 30 year pretty close to a 15 year high. We also I just mentioned it the dollar coming off its worst first half of the year in about 50 years. How should equity investors view that that action when it comes to bonds and currency. I think it's a really helpful and important signal for all investors. I've been sort of describing it as the bond market is the adult in the room saying Houston we have a problem as it relates to deficits and debt levels. Of course we have this big package that's come through here. But the key question is how are we going to pay for it. And so all the action in the yield curve has really been with the 30 year the long bond. As you said with that pushing higher with the dollar index making new lows here it doesn't give a lot of room for the market to move forward. It's really the bond market saying you know we're not going to give you a lot of policy room here. It's more of a bearish kind of a view. So we are seeing a steepening in the yield curve that tends to be historically positive as a leading indicator for growth. I think this time around given some of the dynamics some of the guardrails that are in play here it's actually foretelling a more bearish story has much more important implications for deficits and debt levels than really telling us anything about long term growth. All right. Even with the markets at all time highs people want to put money to work. I want to get your take on the cyclical sectors that have seen pretty strong performance from Q2 up until now with your thought that we might only see one rate cut and potentially tariffs maybe even change in that math. We see you know potentially 200 percent tariffs coming down the line tariffs on chips potentially tariffs on copper. Does that change your view on cyclicals. I was talking to another chief investment officer. They said right now might be the time to take profits on industrials. They've been a leading sector and also fade the rally on small caps that we've seen over recent weeks. Now we've been riding this wave of using both the correction and the rally to reposition portfolios. So we're not taking the view that the market is overly frothy here or that we're in a place where we do need to be de-risking or building cash positions. So I would be using a second quarter earning season and the results that we think are likely to come in much better than expected to reposition portfolios. You called it out. I'll reiterate it. Quality oriented cyclicals not the deep value stories in this environment. We do think continue to be very well positioned. So financials industrials I think are going to show much better than expected results. Perennial Tech continues to be a leader. We think that'll be a positive story as well.

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