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Market strategist: Bearish sentiment forming 'tradable bottom right now'

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Baird Managing Director and Market Strategist Michael Antonelli joins Yahoo Finance Live to discuss the outlook for stocks, market sentiment, and recession indicators.

Video Transcript

JULIE HYMAN: Michael Antonelli is with us now, managing director and market strategist at Baird. Good morning, Mike. Good to see you. So--

MICHAEL ANTONELLI: Good morning.

JULIE HYMAN: --have we indeed seen a short-term bottom? Both Sozzi and I were talking about sort of being surprised at the resilience of the equity market last week.

MICHAEL ANTONELLI: Certainly, there's plenty going on. We all know there's lots to talk about in terms of whether it's rates or oil or kind of geopolitics. But there's some really remarkable things going on kind of under the surface here. That was only the fifth time ever the S&P 500 gained more than 1% for four consecutive days. So that's a pretty significant bounce. And then we got what's called a breadth thrust. My friend, Ed Clissold of NDR, said 90% of stocks are above their 10-day moving average. And that tends to perform pretty well one year out.

It can be a mixed bag over the short run, but it tends to perform really well one year out. Other moments where they had a breadth thrust, March of '21, March of 2020, October of 2020, so a few of them over the last few years. Is that a short-term bottom? It's definitely a tradeable bottom. I think it's definitely a tradeable bottom. February 24, that's when the news kind of was as bad as it gets between oil and the invasion.

So you got to remember, though, my friends, you don't need necessarily need good news for the stock market to do well. You don't. You just need the news to get less worse, which is a nuance. It's all about rate of change. So I think you've got to be asking yourself on this show, even if you're a trader or an investor, is the news getting less worse? And I think for now, it probably is.

BRIAN SOZZI: Michael, I write a little bit about in the "Morning Brief" newsletter this morning there has never been this much pessimism on stocks. And I cited the Investor's Intelligence Survey. Is all this bearishness actually a bullish sign for the markets?

MICHAEL ANTONELLI: Yeah, I read that note. You left the Johnnie Walker bottle in there. Yeah, I think it is. It is for sure. Sentiment tends to work at the extremes, OK? We talk about sentiment a lot. You talk about it on Twitter. You talk about it in the media. You talk about it with clients. It tends to work in the extremes. It doesn't work as well in kind of the middle ground or kind of the no man's land. So when you see sentiment, especially kind of individual sentiment, get really, really bearish, that tends to put kind of a bottom. And it tends to help form what's called that tradable bottom.

So I look at that data, too. I would say that, yes, people are probably as bearish as they've been, but we're starting to see deals now. Maybe we talk about that. We're starting to see consumer activity start to really pick up here, as we kind of head into spring break. So yes, those are important. They work at the extreme. And they're probably part of this notion of a kind of a tradeable bottom right now.

JULIE HYMAN: And Mike, before we get into deals-- I'll let Sozz ask about that in a second-- I do want to ask about the yield curve, right? Because we've been hearing a lot of calls that there's going to be a yield curve inversion and then recession. If not this year, maybe going into early next year. What is your house outlook on this? And can stock-- like, for how long can stocks rally when you are maybe seeing a yield curve inversion?

MICHAEL ANTONELLI: It's tough. It's such a confusing time. It really is. And you think about-- every time, it's different, right? We can talk about that all the time. We might actually end up in a situation where there's kind of 6% nominal GDP growth. There's no kind of obvious excesses in the consumer or corporate space. And yet, we have inverted yield curves.

And we look at those as being kind of a time tested recession signal, but the consumer is in really good shape. The consumers-- where will the excess that the recession causes be wrung from? You know, is it just in valuations? Is it just in the stock market? I don't know, but we are looking at that. I mean, I look at twos, tens, which I think is around 20 basis points. It's something on our radar. It has a pretty good track record. There's no doubt about that.

But each time is different. We're going to-- we might actually end up at a situation that nobody's-- certainly nobody in my generation has seen before, where, again, inverted yield curves, but yet the consumer and the corporate space is doing fine, and 6% GDP. So I think this is going to be one of those for the record books where you're scratching your head, going, I thought we were supposed to have a recession.

BRIAN SOZZI: No, and definitely, Michael, we didn't get that sense, Warren Buffett with his big transaction today for Alleghany. Is that the ultimate buy signal for markets? And let's also keep in mind, Warren Buffett has been out here aggressively buying this month, Occidental. So he is very much putting a lot of capital to work.

MICHAEL ANTONELLI: When I saw the news and heard you guys talk about it, you know what popped into my head? It's Buffett doing Buffett things here, right? This is him tucking in an acquisition in an insurance company. And that's like you guys said. That's one of his major kind of business lines. Anaplan, that one I thought was also interesting. You have a PE firm going into the SaaS space and picking up a SaaS company.

So I like M&A. I certainly do. I think it reminds me and it should remind the viewers here that the world is still spinning. The world still spins. Companies are still planning for the future. They're still doing the things that make them great, great company. Alleghany, by the way, one of the only single letter ticker symbols on the NYSE. There's not that many.

But also consumers, consumers are doing their thing. I watch Disney's kind of theme park availability calendar every day, and it's sold out for days now. And the world is still spinning. We talk about yield curves and invasions and geopolitics and all these things, but people are still planning their lives and planning their businesses. And that's what I think these deals tell me. It's that animal spirits are still alive.