(Bloomberg) -- There’s a rally in the US bond market and there’s a rally in the US stock market. Pimco’s Erin Browne wants investors to understand only one of them is likely to continue.

“Rates and equities are singing from different hymn books,” the portfolio manager for multi-asset strategies at Pacific Investment Management Co. told Bloomberg Television’s The Open on Tuesday. Both markets are pricing in accelerated rate cuts by the Federal Reserve this year and into 2024, which for rates traders means “we’re heading toward a recession.”

But, she said, “equities are still priced with very rich valuations and continued growth and expansion this year and even more so in 2024. They’re not focused on the fact that we’re heading into a recession. I don’t think both markets can be right at the same time,” given that a recession by definition means the economy will contract.

Investors may be starting to listen to Browne and others who anticipate an eventual decline in broad stock market gauges. A selloff in banks led the equity market lower Tuesday after a four-day rally. Treasuries gained as softer data on US job openings bolstered bets that Federal Reserve officials are about to wrap up their tightening campaign.

Browne said worry regarding the financial condition of US regional banks will continue to reverberate across markets.

“I don’t think it’s in the rear view mirror yet,” the Pimco manager said. “We’re going to have more drips of this as we move through the rest of the year. Given the amount and rapidity of extreme tightening last year, I think there’s lots of hidden risks under the surface that are going to come to a bubble.”

Browne recommends investing in “some of the more defensive stocks,” including those that are returning capital to shareholders. She points to “good, operable companies with clean balance sheets,” and those that are not “highly levered.” The companies should have “good operating cash flow” and be “able to persist in an environment with extreme macro volatility.”

--With assistance from Rita Nazareth.

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