COVID-19 fiscal outcome is a ‘success’: strategist

Yahoo Finance’s Brian Sozzi, Brian Cheung, and Julie Hyman break down the market action and outlook with Michael Antonelli, Baird PWM Market Strategist.

Video transcript

BRIAN SOZZI: Welcome back to Yahoo Finance Live, the market is looking fertile. More gains into year end suggests our next guest, Michael Antonelli is a managing director and Market Strategist at Baird and joins us now. Michael, always good to see you. My question to you is simple. Buy, sell, or hold stocks into year end and why?

MICHAEL ANTONELLI: Yeah, Brian great to see you, the whole team at Yahoo. I'm a buyer. I continue to be kind of flummoxed, perplexed by this notion that this environment that we're in is some sort of like, dangerous waters that we need to tread, and I got a great quote. I brought you guys a great quote. Been reading through conference calls. Whirlpool, yesterday-- I'm sorry, two days ago-- Whirlpool.

Today, we're operating in a supply constraint and inflationary environment, which is negatively impacting most industries across the world. Yet, we are on track for a year record performance. And I think that kind of really sums up the environment that we're in right now. Which, yes, it's supply constraint, there's ships in the harbor-- it's inflationary, yes-- but companies, let me remind you, can change prices. Companies can, can modify their business plans to get through these kind of environments.

Whirlpool, a consumer company, on track for a record year despite everything we're seeing here. So are we in a sort of, kind of challenged environment from a consumer, gas prices, and grocery prices perspective? Yes, but, but I do want to remind you that I would consider this outcome, this fiscal outcome we had from COVID, a success. What's the what's the alternative, that we did very little and we're talking about month 19 of a recession here?

BRIAN CHEUNG: Hey, Mike. Brian Cheung here. So we're all over-caffeinated today, talking about the slew of earnings that we've gotten. But I'm just wondering, what's the preview for, let's say, two to three quarters down the line, right? If it is indeed the case that some of these supply chains abate as the Federal Reserve officials have told us might be the case, does that mean that there's going to be this pressure valve?

I asked this of Lori Calvasina yesterday. Is there going to be a pressure valve for the demand, if it's still at the remarkable levels that we're at now, to consume all those goods if the ships aren't stuck off the side of LA? How many shots of espresso should we be preparing in Q2 of 2022?

MICHAEL ANTONELLI: Yeah, it certainly-- another thing that I love to talk to people about is what the market's looking at, and I don't believe the market's looking at 2021 anymore. I believe it's over. It's what you're saying, it's looking out into 2022. It's looking at what's going to happen when this demand shock-- and mind you, we're in a demand shock-- what's going to happen when we can finally meet those levels.

And there's companies that are also mentioning these kind of things. Like, we're having a record year, but we're in good shape to meet demand going into the future. If you look at earnings for next year, if you were to look at 2022 earnings, it's looking at about $220, right now, for the S&P 500. 220, and that number's been kind of fairly steady over the past, past week or two, in terms of estimates.

They really have not come down at all. We have not seen much of a-- much of a pullback. The growth rate of next year's earnings have certainly slowed compared to this year. But right now, analysts are thinking that next year will be good. And if we can get-- if we can get multiples back towards the 22, 23 level, that's S&P 5,000, right? 220 with a 23 multiple that's, that's S&P 5,000.

So we're in a demand shock. I think that demand shock is important to recognize. It's important to understand that companies are looking forward to meeting that demand out in next year. You know, that's what the smartest people are asking themselves, guys. That's what the smartest people are asking themselves. What will inflation be when these supply chains get unclogged?

JULIE HYMAN: Mike, I'm surprised you quoted Whirlpool and not some yacht rock band.

MICHAEL ANTONELLI: Yeah.

JULIE HYMAN: That's what-- that's what I've become accustomed to from you. So, so OK, if it is a demand shock, then once the supply chain stuff starts to unwind, that implies prices could keep going up. Maybe we could continue to see inflation. Is that something we should be worried about and should we be-- do you have confidence that the FED can come in and get a handle on that?

MICHAEL ANTONELLI: One of the things I always love to remind our clients, our Wealth Management clients, is that, you know, having a macro forecast can generally be a treacherous space to, to tread in. So I certainly believe that this demand that we're seeing is, it's caused by many things.

Remember, it's always many things. It's never one thing. It's this kind of historic aggressive fiscal stimulus. It's this, this boom of millennials who are all coming into their economic primes. So it's a lot of things that are going to cause this demand. Whether the FED has kind of lost the narrative on inflation, you're starting to see rate hikes priced into June of next year, to summer of next year.

We were-- we were maybe thinking that the taper would end and then they'd talk about rate hikes, now we have the market price in rate hikes right at the end of the taper. So inflation, definitely something that not only Wealth Management clients, but everybody is kind of worried about right now.

You look at 5 year break even, it's close to 3%. Yeah, we're, yes, we are in an environment where inflation will probably stay near 3% for a while. That's not hyper inflation, though. That, that whole thing over this weekend, it just drove me absolutely nuts. That's not hyper inflation, we are definitely in--

JULIE HYMAN: You're not the only one, Mike.

MICHAEL ANTONELLI: Yeah. That one, I just-- I have takes, but we can't do it all right now. But we are reminding our clients, there are great ways to, to play higher inflation. Stocks. Again, stocks. Companies can raise prices, real estate is a great way to hedge against inflation. I do think that we are in for a period of high inflation. I don't think we're going to just drop back down to a 2% level anytime soon.

BRIAN SOZZI: Mike, you enjoy trying to bait me back into our hyperinflation debate. I'm not going to take that bait today, I'm too earnings focused. But hard right turn here, I follow you on Twitter so I know you couldn't cover everything. Is your phone ringing off the hook right now on crypto? People asking you, hey Mike, how do I play this? I mean, the enthusiasm in the space, it seems to increase every single day.

MICHAEL ANTONELLI: The inquiries are definitely going vertical. There's no doubt that the amount of people that are interested in just what is it. Like, how can I understand it. And I've tried to do a YouTube series for our clients on just the basics of it, right. Because when it comes to Wealth Management, you kind of want to explain it in a very kind of approachable way.

And yes, those inquiries are going vertical. You know, firms like, like Wealth Management firms and people who deal with the average customer, we're still kind of constrained, right. We're still kind of constrained by regulation and, you know, not really good products. There are startups out there that are starting to, starting to work on those problems, but we are kind of constrained. We want to be thoughtful about, if we foray into Bitcoin, how does that work in a plan, a financial plan.

We just don't want to buy something because it's, you know, number go up. We want to buy something because it makes sense for a client. So yes, it's absolutely a topic that I don't think is going away anytime soon for anybody in this industry. And you know, it's a 10-- it's a trillion dollar asset class that's been around for 10 years.

It's hard to say that that's just going to go away instantly. But yeah, we're being thoughtful about it. We're educating our clients, but we're still kind of, you know, we're still waiting for more guidance from kind of the regulators.

BRIAN SOZZI: Well, be sure to tweet me your link, Mike, to your Bitcoin trading series. You know, we could all use a little more info here. Michael Antonelli, Managing Director and Market Strategist at Baird. Good to see you as always.