Three reasons why a ‘perfect storm’ of speculative investors is hitting the market

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PNC Financial’s Amanda Agati sees three reasons for the market’s speculative craze: No commission trading, low interest rates and another round of stimulus checks.

Together, the firm’s chief investment strategist calls them a “perfect storm.”

“The rise in no commission trading, a la Robinhood and a number of retail trading apps, has no doubt added fuel to this fire,” she told CNBC’s “Trading Nation” on Friday. “Also, the low interest rate environment that we continue to find ourselves in really has made the cost of significant risk taking pretty reasonable.”

According to Agati, the timing of the giant short squeezes in stocks including GameStop and AMC Entertainment through Reddit and other chat rooms is no coincidence.

“The final piece of it and not something to discount at all is really the stimulus checks,” she said. “Those rolling out the first week of January, and then the rise in options trading over the last couple of weeks [is] very, very much connected in our view.”

Agati, who oversees $170 billion in assets under management, predicts the speculative mania will fizzle when the country’s economy reopens and the coronavirus pandemic subsides. She believes a huge underpinning of retail investors jumping into stocks to drive up prices is a side effect of a stay at home world.

However, it’s a risk on her watch list.

“While we’re always worried about that spillover effect, it still at least for now remains very much contained to a narrow subset of equities,” Agati said.

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