Baird Managing Director & Market Strategist Michael Antonelli joins Yahoo Finance Live to discuss stock futures amid the possibility of a recession.
BRIAN SOZZI: Welcome back. You're seeing some of the markets under a little bit of pressure here in the pre-market. You see that 10-year yield going above 2.8%. You're seeing cryptocurrency prices under a little bit of pressure. Hence, you're seeing the Dow, the S&P 500, and the NASDAQ all in the red.
But let's chat more about these things. Michael Antonelli, Baird managing director and market strategist. Michael, great to see you, as always. So Julie and I've been going back and forth on this potential for a recession. Goldman Sachs out this morning with a pretty big call. What say you? Is a recession coming later this year? And is it in any way priced into markets?
MICHAEL ANTONELLI: First of all, great to see you guys back in the studio. Just, you just absolutely love to see it. Remember, whenever you see or hear in the media or from Wall Street odds of a recession, it's always between 35 and 40. Remember, that's the default rule. There's a reason why that's the case, but it's always 35 to 40. I don't think that we have a recession. I'm going to go in the no recession camp for this year.
Now when I lean into these kind of things, I think about the past, I think about evidence, I think about probabilities. If you use the yield curve inversion as your signal, which we all know is a pretty good signal, the shortest a yield curve inversion has led to a recession is six months. That was back in COVID. The longest is 33 months. The average is about 17 months. So unless you think that the recession is going to come faster than it did for COVID, it's somewhere out in 2023, possibly 2024.
So my thought would be right now, companies are hiring. Businesses are still expanding. People are working and spending money. You'll hear that employment is a lagging indicator, and it is, but you generally tend to see employment slow, going into a recession, and it's not slowing. So I don't think this year, if it happens to be somewhere out in the next year. 17 months from the inversion, so now you're talking somewhere into 2023, maybe into 2024. I just don't think it's imminent right now.
JULIE HYMAN: So Mike, that's the economic backdrop. Let's talk about what's happening in the markets because it feels like the last couple of weeks, there's been a shift of some kind, sentiment shift, a reactive shift. Do you see that shift? And what do you think is going on?
MICHAEL ANTONELLI: Boy, you look at some of the center reads. They're really bad. Like, they are really, really bad. The AAII data is at a level where recessions usually end. Bank of America puts out that fund manager survey. You're looking at cash overweight by a couple of standard deviations, equity underweight by a standard deviation. These are the kind of things you see when the news is as bad as it gets, and you're in a recession.
So we ask, kind of, what's priced in. When I see those kind of sentiment data, you have to think a lot of negative news is priced in. But the S&P is only down 7%. We're in this kind of weird stage where companies are acting kind of strange. Stocks are trading kind of strange at the industry or sector level. But the overall market is only down about 7%, as measured by the S&P.
So, yeah, you get the-- we've had this real headwind tailwind thing between kind of strong consumer behavior and then a headwind of the Fed or a headwind of really, really bad economic data. So I am not in the category, again, of a recession, but I do think that what's priced in is definitely a lot of negativity. And that, my friends, is important when we're thinking about price action here in the kind of over the short run.
BRIAN SOZZI: Then, Mike, why are these calls even popping up?
MICHAEL ANTONELLI: You know, you're kind of forced to say something right now. You have all these signals that have ticked off. You have clients who are worried about inflation. You have clients who are worried about a slowdown. So, you know, Wall Street feels like it has to say something about an upcoming recession, especially with what the Fed is doing, like I said, and all these indicators.
I've kind of never been in the camp of trying to predict that. I think Morgan or somebody said a recession will happen. It's just you don't know when and where and for how long, which is ultimately the right answer. But I do think that people are having to make this call because there's just so much going on geopolitically and economically and with rates. So they're kind of forced to make one of these calls.
JULIE HYMAN: And so, in the meantime, as this is the backdrop, what do you do from a strategic perspective?
MICHAEL ANTONELLI: So I spent a lot of time on the road over the past week talking to my teammates, talking to clients, trying to figure out what's on their mind and how can we help from here. And when we're in times like these, I tend to look at just relative strength. If I can't really get a sense for the market, if I can't get really a sense for the trend, I kind of just continue to look at relative strength.
So I look at kind of three-month relative highs. Those are staples, energy, materials. Three-month relative lows or the technology consumer services-- I'm sorry-- communication services, financials. I just try to stay overweight the stuff that's working right now. And then I just remind people that there's been lots of recessions throughout history. At the end of World War II, there was a recession due to high inflation. It was a mild recession that lasted 11 months.
Recessions don't necessarily have to be these horrendous experiences, like we've been having over the past few decades. There have been plenty of mild recessions in history. That's a relative term, obviously-- mild. But I just keep telling people to stick with what's working, and those are the staples and energy materials right now.
BRIAN SOZZI: Hey, Mike, switching gears, I would say, you're among the found one of the founding members of the financial Twitter community. Very active out there at all times. What do you make of this battle between Twitter and Elon Musk? Do you think Musk would bring certain changes to the platform that would make your life better?
MICHAEL ANTONELLI: I look at Twitter as kind of the public space, like a lot of people do. I spend a lot of time there learning from super smart people. I spend a lot of time there engaging with journalists from all over the world. I love it. If this deal ends up falling through and Musk doesn't end up acquiring the company, I just want the board to come out and say what they're going to do to improve the service.
Are you going to sell verification? Are you going to create communities? How are you going to ramp up this company and for not only its users, but its shareholders? I want to see something good come out of this, no matter what happens. But I do think that they need change. Look at what-- like what Jack said about the board. I think they do need change in this company.
I'd also like to see the board own a little more stock to get some skin in the game to improve this service. It's an important service. It really is the town square. It's where all the news breaks. Everything breaks on there, especially if you're a trader or in finance. You have to be there. I just want to see something good come out of this, no matter what. And even if it's not Musk, the board needs to step up and say, this is our vision to make this place better.
JULIE HYMAN: Yeah, I was just looking, and the current CEO, Parag Agrawal, owns, what, about 500,000 shares. So I've seen some calls for him to increase his stake also. Mike, your number as a user, what would be your number one change that you would want to see?
MICHAEL ANTONELLI: I think communities would be great. I've used Reddit a fair amount in my life, where there's actually just communities you can go occupy, whether it's finance Twitter, whether it's politics Twitter, whether it's sports Twitter. I'd like to see some kind of segmentation where I can go just interact with people that I really, really enjoy in a defined space. I'd also like to see them embrace spaces a little bit more. Space is just great. We have really talented individuals who do CPI prints.
Maybe Yahoo Finance starts a space. Like, maybe all the different journalists out there start really interesting spaces because to be able to talk about this stuff in real time is valuable, especially for traders or portfolio managers or strategists. I'd like to see more personalities doing stuff in real time, and then maybe ticketed spaces. Maybe you can interact with Michael Lewis in a space, and it costs $1 or $2 or whatever. I think there's stuff out there that they have that's good. They just need to really kind of focus it.
JULIE HYMAN: Well, just in case Elon's not watching, you should definitely tweet at him all of these suggestions, Mike, because he is definitely taking a lot of feedback via Twitter these days. Mike, good to see you. Michael Antonelli, Baird managing director and market strategist, thanks.