Market indices have begun to pull back this week ahead of Thursday's Personal Consumption Expenditures (PCE) print. Despite this, BMO Wealth Management US Chief Investment Officer Yung-Yu Ma characterizes market conditions as being a "Teflon market," where bad news cannot dampen recent stock gains.

Ma sits down with Yahoo Finance's Akiko Fujita to talk about how anxious equities truly are about the upcoming inflation gauge, also touching on core market themes amid interest rate predictions and recession forecasts.

"A lot of people are thinking there could be a replay of the mid-1990s, where we had strong productive growth, we had relatively low inflation, and we had market gains for several years in a row," Ma explains. "I think that's right now, the combination of that is allowing the market to shake off some of these near-term challenges that have risen, both inflation challenges, the Fed [Federal Reserve] pushing out rate cuts, geopolitical concerns."

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

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

AKIKO FUJITA: Well, stocks edging lower today as investors await the Fed's preferred inflation gauge out tomorrow. Any sign of prices re-accelerating sure to push back expectations for an interest rate cut from the Fed. But our next guest says, that may not be enough to pull back stocks. He says we are in a Teflon market where bad news just doesn't stick. To break it down for us we've got Yung-Yu Ma BMO Wealth Management US Chief Investment Officer. It's good to talk to you.

A Teflon market, but I have a hard time thinking that if that inflation print comes in much hotter than expected, we're not going to see a big reaction from the markets.

YUNG-YU MA: Akiko, it's great to be here. We actually did see two already somewhat difficult inflation prints with CPI and PPI already this month. The PCE inflation of course that is the Fed's preferred measure. It's true if it comes in much hotter, I think that would give the market's pause. But so far the market's been able to shake off a lot of these-- inflation prints have come up so far because some of the forward looking measures of inflation still look pretty good in terms of inflation moderating going forward.

So it's still a backward looking measure. That's important to keep in mind in some of the forward looking measures still look favorable.

AKIKO FUJITA: And when you talk about the market really being able to shake off some of these disappointing or hotter than expected inflation print other disappointing data. Is it more about the tech trade, this huge enthusiasm around AI overshadowing that or I mean, how do you-- how do you make sense of the reaction that we've been seeing in the market or is it about just this bumpy road on the rate to a rate-- on the road to a rate cut largely being baked in already?

YUNG-YU MA: I think it's a little bit of both. The market still is expecting rate cuts even if they are pushed out to happen later this year and probably into next year as well. But it's also a lot of enthusiasm about AI and just productivity in general. The technological improvements and the prospect for companies being able to improve productivity. Improve their profit margins. A lot of people are thinking there could be a replay of the mid 1990s, where we had strong productivity growth.

Where we had relatively low inflation and we had market gains for several years in a row. So I think that's right now the combination of that, that's allowing the market to shake off some of these near term challenges that have arisen both inflation challenges, the Fed pushing out rate cuts, geopolitical concerns. Of course, the market's ability to do this is not unlimited. But so far it has proven quite resilient and able to shake off a lot of these concerns.

And really focus on some of the optimistic areas that it thinks could play out over the next year or so.

AKIKO FUJITA: On that optimism, you've been in the soft landing camp for some time now. As you look ahead to the second half of the year, how are you shaking up that portfolio? Do you stay the course with this expectation that there could be a rate cut come June, maybe a little later or is now the time to add some exposure to other areas?

YUNG-YU MA: Well, now is the time to certainly think about adding exposure if people have been in their portfolios relatively cautious. We know a lot of investors have done that because they've been concerned about the prospect of a recession happening at any moment. The recession has been expected for quite some time and kept being pushed out. And we've been talking about a soft landing for over 14 months now. And we do think that investors that might be under-invested should certainly think about adding to the equity markets here.

But we are optimistic about the second half of the year. We think the prospect for improved productivity growth adding to profit margins, adding to gains in the market along with some re-acceleration of corporate spending. And also stability in consumer spending. We think there's enough in the mix here that even if we just get a few rate cuts this year by the Fed, that's going to provide a pretty healthy environment for risk taking this year.