Baird Managing Director and Market Strategist Michael Antonelli joins Yahoo Finance Live to discuss market moves, investor sentiment, earnings expectations, the upcoming FOMC meeting, and the outlook for the Fed.

Video Transcript

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- Ahead of that, let's zoom out a little bit. We've, of course, had a lively start to the stock market this year, after experiencing the seventh worst year for the market in 2022 since the 1920s. But was this January as good as it's gonna get for the year? And where do we go from here?

A new survey shows investors have little confidence in stocks, despite this month's surge. JPMorgan out with a night note, as well this morning, echoing that sentiment. Let's dive into it with Baird Managing Director and Market Strategist Michael Antonelli. Mike, good morning. Good to see you.

You know, you can take it at whatever way you want. You have on the one hand, the old saw, as goes January so goes the year. And we've had a good January. On the other hand, there is this sentiment out here that this is as good as it gets. Which camp do you fall into?

MICHAEL ANTONELLI: Good morning, Julie. Good morning-- good morning, Brad and Brian. I read Brian's note this morning about being a bizarre moment. And I think that's right. I've been trying to explain this to not only our customers but to other kind of colleagues. Like, why is this such a bizarre moment? And I think I've landed on one thing on whether what we're going through now is kind of as good as it gets.

Markets over the very, very short run, trade on rate of change, right? We know this. Like, are things getting better or things getting worse? And I think that the move we've seen in January is all about rate of change, OK? And rate of change is enough to get you over some lines on a chart. It's enough to get you over a diagonal line on a chart or a moving average.

So what does that mean? That means, well, things weren't as bad as we thought. Maybe they're getting a little bit better at the margin in things like inflation, and housing, and a job-- the job market. So that rate of change is enough to get us to where we are. But that's not enough to kind of really push us into the stratosphere, to push us, like, much, much higher. So that's what I've landed on. We're in this situation where technicals are good but fundamentals are kind of bad, which is, I think, is essentially it was Brian was saying this morning.

BRIAN SOZZI: Michael, thank you for recapping my "Morning Brief" newsletter. And, of course, you can read more on the Yahoo Finance home page. But look, what do you think February has in store, Michael, just given we might see just a rethink of how fast markets have come out of the gate this year?

MICHAEL ANTONELLI: You know, like you guys said, it's a busy week. I mean, the number of stocks reporting this week, I think it's 107 S&P companies, 6 of the Dow components, a Fed meeting. So we're gonna kick off the-- we're gonna kick off the month with plenty of data to digest.

I came on Yahoo Finance the last time I was here and said, I think the Fed's one more 25 hike and done. And I'm gonna stick with that. I'm not-- I'm probably out of consensus, for sure. I think they're gonna look at some of the data and say, all right, this long variable lag we mentioned, and the fact that we've done enough already, I think we get another look at CPI and earnings.

So I think February has a store for it a lot at the front end of the month. And the front end of the month is gonna basically set the tone for the whole entire-- maybe the rest of the quarter here, basically. But we need to see the market defend the 200 day, defend this kind of downtrend. That will be an important part of the first part of the month. But ultimately, it's gonna come down to these 107 companies that are kind of the bulk of the earnings.

BRAD SMITH: But how much is the market still lingering on every single announcement from the Fed right now? Is it pricing-- and I ask that because of the reasoning, is it pricing in a terminal rate or is it just kind of lingering on the in and out of the minutia of every single meeting, and taking them as individual nature?

MICHAEL ANTONELLI: It's a great question. You could argue this from the bullish and the bearish viewpoint. The bullish viewpoint would tell you this, when the market can get its arms around the kind of worst case scenario for Fed funds, that's a powerful thing.

When it can take off the table a left tail of 6%, 7%, 8% Fed funds, that's a good thing. That means the market can see the finish line. And I think that's where we're at right now. I think it's taken off those worst case scenarios, and the Fed funds rate inflation, wage spiral. All that stuff has been taken off the table. And that's an important component of what the market's doing.

On the bearish side, you would say, yeah, what if the Fed comes out, what if Powell comes out and says, look, I'm still hawkish. We're still hiking, forget it. The financial conditions are easing, forget it. So the language, right, could be a real headwind or in the positive camp for the bears.

But I think what's really, really important-- just to summarize that-- is we've taken that worst case scenario off the table in terms of Fed funds. And that's just outright bullish. It's just it's outright good for risk.

JULIE HYMAN: Yeah, I guess the bears would say, maybe the market's not right to take that scenario off the table, to your point about bearish language. I want to get to earnings for just a sec, Mike, because earnings on average have not been beating estimates, right? Or at a lower rate than they typically do. How does this earnings season feel to you? [LAUGHS] I guess if we're getting touchy-feely here. How does it feel to you? Is it as bad as anticipated?

MICHAEL ANTONELLI: FactSet pointed out-- and Brian had it in his note-- that, you know, the growth rate is actually negative. It's about it's about minus-5% growth rate. This would be the first time since I believe 2020 for the earnings growth rate.

All that stuff is really well and good. You know, talking about this stuff is great, and it makes for good tweets and it makes for good conversations. But price action's everything. Now, this is the trader in me speaking now. Price action is everything.

When you see a bad report and a stock goes up, say Microsoft for example. When you see something that raises your eyebrow, like, wow, that looked bad but yet the stock is up and the market's shrugging it off, that's the clue. That's the real information coming out there.

So what we're gonna want to watch this week-- Meta, Amazon, those companies, Apple. We want to watch, how is the reaction? Is it a bad day to report? Fine, that goes into some metric in a data sheet. But how is the stock reacting? Because even if it's bad-- remember it doesn't have to be good news, it just has to be less worse, back to this rate of change thing. So while we're starting off a little slow, price action has been pretty good and I'm taking solace in that.

BRAD SMITH: All right, great to have you here with us to kick off this week. Baird Managing Director Michael Antonelli, always a pleasure to get some of your insights.

MICHAEL ANTONELLI: See you, guys.