Bear market won’t bottom until ‘first quarter of next year’: Strategist

Baird Managing Director Market Strategist Michael Antonelli joins Yahoo Finance Live to discuss the current market cycle, U.S. inflation, a recession probability, the end of rate hikes, and the expectations for fourth-quarter GDP.

Video Transcript

[AUDIO LOGO]

JULIE HYMAN: All right, let's broaden things out, guys, for Things Number Three.

Inflows into global equity funds have hit their highest level in 35 weeks. But a new note from Bank of America suggests the recent rallies could fizzle out amid earnings risk and staunchly hawkish central banks. For more, let's bring in Baird Managing Director and Market Strategist Michael Antonelli. Michael, I know you were sort of celebrating the end, maybe, of Twitter also. But we'll get to that later.

MICHAEL ANTONELLI: Yeah.

JULIE HYMAN: What do you think-- where are we here in this current, like, market cycle, right? What can we expect between now and the end of the year and going into next year?

MICHAEL ANTONELLI: First, Julie, can I say, "Philosophy" by Ben Folds, phenomenal song. Just a phenomenal song.

JULIE HYMAN: Oh, thank you. Thank you. See.

MICHAEL ANTONELLI: [LAUGHS]

BRIAN SOZZI: Cut this guy off.

MICHAEL ANTONELLI: Maybe it's a Gen X thing, I don't know. I-- you know, I see this rally kind of fizzling out, too. If you think about the kind of trend that we're in, if you think about the bounces that we've seen, whether it's the kind of summer bounce or this bounce-- we've seen a couple, like 7% to 8% bounces, which that's very typical of being in a bear market.

So I think as you're looking towards the end of the year, there's this notion of a Santa Claus rally, right? Are we gonna get this thing that seasonal trend-- this seasonal trade that tends to happen quite often?

The funny thing with that is if you look at the data, those Santa Claus rallies generally only tend to happen in bull markets. They don't tend to happen in bear markets. There's not that many bear markets, obviously. But if you were to look at those, there really is no Santa Claus rally so that notion is a pretty conditional seasonal trade.

So I do think we'll probably still, you know, be grinding a little bit lower. We're not out of the inflation thing yet. I certainly think inflation's peaked. But there is a lot of hawkish Fed speak still out there. There might be some people calling it the side of being doves but I do think we're probably still in for a little while longer.

BRAD SMITH: OK, and so how much longer would that be in your purview?

MICHAEL ANTONELLI: Yeah. Yeah. So here's what I've been saying, I've been talking to clients nonstop basically for the better part of 10 weeks. I think the stock market bottoms probably sometime in the first quarter of next year. That's the kind of view I've been going out on.

And I say that because I do think we get a mild recession next year. I think that's probably in the cards. And stocks tend to bottom about six months before a recession ends.

So if it kind of-- if we get a mild recession that goes, you know, through the spring and summer of next year, maybe the stock market bottoms are kind of the first quarter of next year. So that's been the view that I've been going out on.

BRIAN SOZZI: Michael, what happens-- you know, as we go to that potential bottom in the stock market, is there an event you're looking for that can really drive down the broader market? Is it corporate earnings that could fall off a cliff?

MICHAEL ANTONELLI: That's the bear case and it's one I struggle with. I know that that's the-- that's the kind of main talking point for bears is, hey, E has to fall. E has to go down. But you know, fourth quarter GDP right now is looking to come in plus-4% real. That's a pretty impressive number.

So while I do think, you know, corporate earnings fall and that will probably be a headwind, the bottom is going to be much more about, you know, the Fed finally tilting, the Fed finally saying, OK, you know, we're-- 75s are down, 50s are probably done, too. We're seeing the end.

You know, we all know that, you know, Fed hikes lag. That kind of affects lag. So I do think the end just has to be something from the Fed, a meaningful pivot, a meaningful change in their language. That, to me, is the bottom.

JULIE HYMAN: Speaking of philosophy by the way, Mike, you were reflecting on your lessons from 2022 in a note you sent to us. And you were sort of philosophical in the first one of these lessons, which is bear markets happen. I mean, obviously it's not fun if you're losing money, especially if you're on the cusp of retirement and a bear market happens. But how do we sort of put things in context and think about it over the life of our investing, for example?

MICHAEL ANTONELLI: Yeah, I have a new blog coming today called "Lessons from 2022." That's my number one-- that's my number one takeaway from this year is that, you know, last year-- if we were doing this interview last year, it was, what, one of the best years ever to be an investor. It was phenomenal, right?

I mean, we know why in retrospect. But bear markets do happen. I'm 48-years-old. In my adult life, this is my seventh bear market. They happen quite often. I've been telling people, instead of trying to forecast them, expect them because basically if you look through history, you get two bear markets every decade. It happens.

You know, you get two recessions every single decade. So in order to be an investor, you have to expect these turbulent periods. The best thing you can do is to plan for them, is to say I know they're coming, I'm going to get through them. How do I get through them? That's where I kind of engage with somebody to help me plan through them.

So yeah, they happen. And by the way, they come fast. The last two came with no warning-- COVID and this one basically showed up like that. So you're gonna get at least two every decade the rest of your life.

JULIE HYMAN: And Michael, everybody should check out that blog post, by the way, to see all of the other lessons from 2022. But speaking of sort of preparing for the worst here, I want to circle back around to Twitter because I know you're a big user of the platform, right? And you tweeted about it.

"You can check out any time you like, but you can never tweet." And you know, just talk to us just for a second about the role that Twitter has played. I mean, I talked a little bit about the role it played for the media. What about for those of you who are in the investing community?

MICHAEL ANTONELLI: It's, honestly, Julie, it's crucial. Really, if I think about the thing that I use the most-- so I was a trader. On a trading desk, there's lots of people around you passing information and little tidbits and things that they're seeing. Twitter is that. To me, Twitter is the tape. Twitter is where I get all my information. It's where I met all of you. It's how I kind of got to Yahoo! Finance. All of these little doors that are opens up.

I'm rooting for it. I'm so rooting for it. I want this to succeed. I don't want to have to go to chat rooms. I don't want to go to Mass-- nobody's going to Mass-- I don't want to go to Mastodon. I don't even know what that is. I just-- I just want to stay with the people that I met on Twitter. Just please make this work, somebody.

BRAD SMITH: All right, well--

JULIE HYMAN: Amen, Mike. Amen.

BRAD SMITH: Baird Managing Director Michael Antonelli, I literally had the Mastodon download link on my phone before we started this show here today. So maybe or maybe not, we'll see you there. And thanks so much for taking the time, Mike, appreciate it.