Baird Managing Director and Market Strategist Michael Antonelli joins Yahoo Finance Live to discuss the stock market, rate hikes, inflation, the probability of a recession, and the outlook for investors.
Video Transcript
- Welcome back to "Yahoo Finance Live," everyone. With the markets finishing one of the worst halves in decades on Thursday, investors are hoping for more positives in the second half of the year. But with recession concerns and rising inflation, the grass may not be greener on the other side. For more, let's welcome in Michael Antonelli, Baird managing director and market strategist. Michael, how long can we expect to stay in this bear market?
MICHAEL ANTONELLI: Brad, great to see you. Brian too. I'm excited to be here today after this holiday.
We're in the midst of something that's really, really unprecedented. If you were to look at the first half of this year, if you looked at the first six months, one of the absolute worst-- I mean, in like the 98th percentile of worst returns you could expect between bonds and stocks-- things you see inside the Great Depression or the GFC or the dotcom collapse. I've been trying to talk to clients about expectations. I've been trying to set their expectations about how long could we be in this.
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Like, what does this look like from an investor's perspective? And what I see from the data is that the average bear market lasts about 300 days, OK? That would be all the way to November of this year, and the average bear market drops about 30%.
I think this is interesting, guys. This is really, really interesting to me. If you were to say 2020 and 2021 is an anomaly, we want to wipe those out-- stimulus, pandemic, all that stuff-- the wipeout point for those two years is about 3,350 on the S&P, and that would be down 30%, which is the average bear market.
And that would be wiping out both of those years. Is that a decent place to think about it? It probably is, but I'm not saying we're going to go there, but that's what the averages would say to the average investor.
BRIAN SOZZI: Mike, don't even tell me you're getting asked about the Great Depression.
MICHAEL ANTONELLI: No. No, thankfully, no. Yeah, thankfully, no.
BRIAN SOZZI: Is there--
MICHAEL ANTONELLI: I mean-- go ahead. Go ahead.
BRIAN SOZZI: The second half of the year, then, what type of catalyst could there be to the upside?
MICHAEL ANTONELLI: This is hard because we're in a really, really weird situation. I read your note this morning, Brian, about drinks in a bar and the fact that people seem to be--
BRIAN SOZZI: Thank you, as always.
MICHAEL ANTONELLI: --in good spirits.
BRIAN SOZZI: Thank you.
MICHAEL ANTONELLI: Yeah, it's a weird time, and I think it's OK as strategists, even as journalists, as investors, to say, this is just unprecedented.
I mean, we have to remember that crises have unpredictable impacts on the world, and we just went through one. And not only that-- events compound over time. And we're going through all the different things that happened during COVID.
I think what you can look forward to in the second half is inflation abating. I think we've already mostly agreed that inflation is abating. The market's started to worry more about a recession now than it is about inflation. If down 30 is the average bear market, we're down 21, 22.
So the bulk of that's already into the market. Remember, the market will bottom ahead of the economy, will bottom ahead of the news. So that's something we could also look forward to. But it's a weird time. It's OK to acknowledge that it stinks right now, and there's no real road signs that make a lot of sense.
- So if the Fed were to see any flashing red signs, which, they're probably already seeing a lot of yellow signs out there right now, would they be prompted to take their foot off the gas with regard to their policy decision making?
MICHAEL ANTONELLI: Great question. It's something I've been trying to think about and write about. They've been kind of so burned by inflation. All these global central banks have been so burned by inflation.
I don't think they can. I don't think they can take their foot off the pedal even if they got two negative GDP prints in a row. We might actually get that with the second quarter GDPs.
And this is going to be weird. They could be hiking in a technical recession and with unemployment super, super low. It's just one of the most unusual periods.
It's like, you know, inflation accelerates, but yet commodities are rolling over. We have higher prices and rates, which should destroy demand. But yet consumer balance sheets have never been better. It's this-- the effects of a post-crisis world, and we're all trying to put them together. But it's going to be very strange to see them hiking with unemployment in the 3's or 4's.
BRIAN SOZZI: Mike, how bad is this earnings season going to be, and what is it going to do to the markets?
MICHAEL ANTONELLI: If you were to look at earnings estimates for this year, they really haven't budged all that much. I've been kind of thinking about it myself. The E has to come down. I think that most people are saying the multiples are already compressed.
The E has come down. Let's say that the E does come down. So right now, it's at-- right now, we're at $225.
Let's say it goes down to $200. Let's say the E really does come down and you still stick a 16-- I don't know, 16 and 1/2 multiple on it, which is where we are now.
That gets the S&P to 3,400. That's kind of, again, where we're kind of hanging out right now. So I think the market is thinking about E coming down.
I think it's thinking about a technical recession. But again, the only way you think that the market goes significantly lower is if you think it's one of the worst recessions in history because the worst bear markets lie with the worst recessions in history. And I'm not in that camp.
- Mike, what song would people be singing at the bar, then? Because we know you had a tweet about this over the weekend trying to figure out which is the best song for a whole bar to sing. And "Sweet Caroline" won, 39%.
MICHAEL ANTONELLI: Yeah, that was-- I thought that was a good poll. I had heard a couple of those. And hey, listen. We're all right now in the "Hotel California," right? We can check in, but we can never leave. That's where we are right now as investors. And we got to get through this moment together. Look, if the market goes up over time, which our friend Sam Ro says it does, so I trust my friend Sam Ro, if it goes up over time, then what you do right now is all that matters.
- Sam Ro is--
MICHAEL ANTONELLI: So you need a plan, and you need to stick to it.
- Sam Ro being the "Mr. Brightside" of this equation.
MICHAEL ANTONELLI: Yeah, yeah.
BRIAN SOZZI: All right, Michael Antonelli, keep those polls going and the good advice too. Michael Antonelli, Baird managing director and market strategist. Always good to see you, my man.