On the heels of a Thanksgiving-timed “Turkey Rally,” PNC Asset Management CIO Amanda Agati says markets have reached a “crossroads” in determining the next catalysts to push them higher. Despite stocks rebounding off correction lows without further Fed tightening recently, she struggles to identify any "meaningful positives" and "meaningful negative" catalysts within the market, telling Yahoo Finance: "I think what's interesting at this point is what is the catalyst to kind of keep this market rally going?"

Agati believes this market uncertainty leaves investors in a holding pattern. Agati notes if the Fed maintains its current policy stance, markets may remain “directionless” to close 2023. With a recession still a potential risk, Agati advises investors to "stay close to long-term strategic targets" and let the new year shake out before making significant positioning changes.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

RACHELLE AKUFFO: So start by setting the expectations. Given what drove markets so far this year, what is going to be what really sets the tone for the rest of the year?

AMANDA AGATI: Well, it's so nice to be with you. First off, thanks so much for having me. I think we're at a bit of a crossroads in terms of what happens next certainly for markets. It's been such a strong rally really all year long. I mean, we had a blip earlier in the fall where we had a bit of a correction, something that we had been anticipating.

But the market seemed to shrug it off and continue to forge a path higher here. And so I think what's interesting at this point is, what is the catalyst to kind of keep this market rally going? Certainly, the breather that we're seeing right now is well-deserved given the sprint that the market has had all year.

But with the Fed sitting on the sidelines and not necessarily taking any policy action, I think it's hard to really grab on to meaningful positive and also meaningful negative catalysts. And so I think what we're left with is a bit of a rangebound kind of choppy market from here through year end. So our view is we probably won't see a Santa rally materialize because we already got that turkey rally.

AKIKO FUJITA: So no Santa Claus rally. But it sounds like you don't see significant downside moving forward. Is this kind of a time for investors to maybe look ahead to what they want their mix to be in their portfolio going into 2024?

AMANDA AGATI: Yeah, I don't see a lot of downside at the moment. That's the challenge I mean, of course, the black swans, you know, you never see coming. So there could certainly be something that catalyzes a downdraft here.

But if the Fed kind of stays put right now, we think that, you know, the market kind of chops around and ends up being a little bit directionless. I think the market is really looking to somewhere in the neighborhood of 100 basis points or more of rate cuts beginning early next year.

I would say no way. We're not in the camp that we expect that kind of meaningful policy pivot. But certainly, with that kind of sitting there in the near-term horizon and markets starting to price for that, it is important for investors to start getting prepared for the new year.

It's a little bit of a snoozer though because we've been in derisking mode all year kind of trying to get ready for this highly anticipated recession that hasn't materialized. We still think it will materialize and be mild in nature. But I don't think there's a lot for investors who have already run that playbook to get prepared for. So it's sort of staying the course-- staying close to long-term strategic targets and see what the new year brings.

RACHELLE AKUFFO: So, Amanda, what's going to be the best indicator of when things are going to shift? I mean, we're looking at the VIX here currently around early 2020, prepandemic levels here. A lot of this risk, at least for the markets, they're pricing it in as being off the table for now. At what point will that turn? What will you be watching for?

AMANDA AGATI: I feel like a broken record. But I've been saying this for the better part of the last couple of years that the single most important driver for markets is when the Fed gets out of the driver's seat. And the Fed has been in the driver's seat for a very long time.

And so if we start to get this indication that the Fed is going to take action one way or another, higher or lower, I think that's really when markets are gonna start moving and anticipating before we even see Fed policy action.

I think in the earlier segment, you were talking about sort of the high volatility nature of Fed speak, right? We've been in a high volatility regime for markets. But the Fed speak has been pretty wide and volatile too. A lot of different views on what the next step is.

And so, you know, I think what's really important still is what the policy path forward is. We're in very restrictive conditions certainly. But we haven't felt the full effects of all of the policy action come through yet. So that's really what we continue to focus on, even though it feels like a broken record story that's been the case the last couple of years.