00:00Joining us now is Amanda Aghadi. She's chief investment officer at PNC. Amanda, how do you
00:06think that this week's inflation data impacted that Fed decision that we're expected to see
00:11on Monday? Did it pretty much make this a fait accompli or could there still be a surprise in
00:16possible inaction coming from the Fed? Well, it's great to be with you guys. Good morning. I think
00:22the Fed is probably blasting the clash right about now. Should I stay or should I go?
00:28I mean, clearly the market thinks that the data this week says we're go, right? We're 25 basis
00:34points higher, if not two rate hikes in the balance of the year. And I've been saying this for a
00:40while.
00:40I am not convinced that that's the right answer. I'm not convinced that 25 basis points even makes
00:45much of a difference given what's driving inflation, what the macro backdrop looks like. But I think the
00:51Fed is still in a tough spot. I don't know if they have it figured out quite yet, but the
00:55market seems
00:56to think it's figured it out. The clash rings in my ears here. Let's dig into those numbers a little
01:00bit more. So obviously the headline number is startling, but we can attribute a lot of that
01:04to the war, the rising cost of energy. What stood out to you from that report? And as you kind
01:09of
01:09think through what these policymakers are going through in that meeting next week, I imagine
01:14there's still some tendency to say, look, maybe this is a short live thing. There's a concern here
01:18about doing too much in a moment when there still is a lot of uncertainty, Amanda.
01:21Yeah. I mean, I don't want to get too bearish about it because I think the backdrop continues
01:26to be really strong. Economic growth has surprisingly upside. This is not an economy that's running
01:32hot per se. Let me call it warm. How about that? For a technical term for you, the earnings growth
01:39backdrop is really strong. So there's no real reason to get overly bearish here in this moment. I think
01:47the challenge is just do policymakers need to intervene? And so my concern, if there is one
01:53right now, is that it's not about 25 basis points, as I said, but the further we go with this,
01:58do we
01:58start to run the risk of a policy error when, as you said, a lot of these forces, a lot
02:03of the
02:04exogenous forces that are driving the backdrop now that were not necessarily present at the beginning
02:09of the year are really impacting the trajectory of inflation, right? If we weren't in the Middle East,
02:15I'm not trying to take a political stance here. I'm just saying if we weren't there, we'd have a
02:21very different backdrop as it relates to oil and gas and energy prices, commodity prices, et cetera.
02:27And when you look at the data on Friday, there was a huge difference between headline and core. And so
02:32that's the thing that I'm worrying about. How long is it going to take for some of these forces to
02:37settle down outside of what I think the Fed may or may not need to do? And frankly, I'm just
02:42not sure
02:43that 25 basis points can really help. It's really going to harm, I think, those that need support
02:49in this environment. It's been interesting watching this conflict along with the markets.
02:55And I've been calling this indefatigable optimism. You're seeing any time there's a whiff of a deal,
03:00you see oil prices drop and markets rebound. That is happening less and less. And I'm wondering,
03:05based on what you just said, if you think the markets have finally reached the point where the
03:10the burden of proof in the numbers is going to be higher, that they are doubtful that this is going
03:15to resolve and are acting like this is the state of play going forward for the foreseeable future?
03:20Well, I think there is certainly some element to that. The markets really try to figure out very
03:26quickly how far geopolitical conflicts are going to go in terms of impacting energy policy, energy supply.
03:34Sometimes in the past, we've seen weaponizing of energy from policymakers and conflicts. And so that
03:40has catalyzed pretty significant corrections in the market historically. That's not what's happening
03:46here necessarily. I think the challenge is that it's going on far longer than what the market had
03:50anticipated. I myself said, if we were still talking about this in June, Houston, we have a problem,
03:57right, as it relates to the backdrop. And so I think the market is starting to hunker down a little
04:01bit
04:02for this lasting a lot longer than anybody would like. And in the case of the bond market in
04:07particular, the bond market is saying no bueno, right? For a lot of different reasons, the bond
04:12market is sort of casting its vote early on this particular topic. And so it's just a very different
04:18backdrop, a different confluence of forces. And I think it is leading to a stalling out of the equity
04:24market here in the short run.
04:26Bond market, no bueno. See, these are bond market terms that I can get my head around.
04:30Use that with Tom Keen on Monday. He's going to love that.
04:33Let me ask you lastly, Amanda, just about how much anxiety there is about AI in Pittsburgh where you
04:39are in the city of Bridges. There's been so much in the market this week. And I look at what
04:42we
04:43heard from Oracle yesterday, the demand for cloud computing so huge over the last quarter. Lisa
04:47Matteo just a moment ago talking about how much demand there is on Microsoft for cloud computing
04:52capacity. You know, we see, we feel the anxiety, but is it manifest yet in the company and the broader
04:57tech sector at this point? I think it's actually less anxiety, less paranoid Android for a radio
05:04head reference. I don't know if you're a radio head reference. Come back. Come back anytime, Amanda,
05:08please. I've had many cups of coffee. Okay.
05:13We'll get the iPod ready for your next appearance. Yeah. Sorry. Continue.
05:15Okay. Let's do it. Let's playlist it up. I think the sort of peak investor anxiety or sentiment,
05:23you know, paranoia around all things AI happened earlier. Q2 earnings season really, I think,
05:28demystified, dispelled a lot of that. And so it's really not the thing at the moment that I think the
05:34market is focused on. It's really Fed, Treasury, rates, CPI, and what the path forward holds.
05:40So I think it's still swirling in the background. It's just not the top of mind topic at the moment.
05:46And when the fundamentals came in so strong and in such a broad-based way for Q2 earnings season,
05:52I mean, 51% year over year earnings growth on the S&P 500 is just like mind blowing, right?
05:58So I think
05:59it dispels this anxiety about, is there anything there there? It's going to come back home to roost.
06:05There's no question. Investors want to know where that sort of peak or that inflection point in CapEx
06:11spending is, what return on invested capital is going to look like. I'm not sure we got a lot of
06:15clarity out of that, out of Q2 earnings season, but we still think it's early to mid-innings.
06:21There's a lot of runway left in that AI cycle.
Comments