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Stock market: ‘We have momentum on our side’ at the start of 2022, strategist says

Michael Antonelli, Baird PWM Market Strategist, joins Yahoo Finance Live to examine what today's market strengths may mean for the rest of 2022, in addition to talking about how the Fed's policies may impact that outlook.

Video Transcript

[MUSIC PLAYING]

JARED BLIKRE: Welcome back. It is the first trading day of 2022. We have markets up in the free market. And we want to take a look at everything that's going on with our special guest. Next up is Michael Antonelli. He is a Baird PWM market strategist. And Michael, always great to see you here. We've been talking, Julie and I, about what some analysts are thinking about for the new year. What's on your mind?

MICHAEL ANTONELLI: Hey, it's great to see you guys. Happy new year to both of you. Great to be back. When it comes to outlooks, there's something that I tend to think, and that is, obviously, everybody is putting these out for just a general thought. And honestly, when you read an outlook, you shouldn't be actually looking for the exact number, because, obviously, that's a tough number to pick. What you want to be looking for is how that person thinks about the market, how they think about the economy.

And when I think about the market and the economy right now, I think about momentum. Momentum is one of the most durable factors when it comes to the stock market. If you looked at new all-time highs last year, there were actually more new all-time highs last year than in the entire '70s and 2000s combined, those two decades. It's just we got a lot going for us right now.

If this wasn't January and I were to look at the market, I would say, what's at all-times highs? Well, most of the major indices, industrials, technology, discretionary. So we have momentum on our side. And you have to remember that if you pick any 12-month period in history, any 12-month period, stock markets are positive about 73% of the time. And that's the same now as it was in history.

So when I'm looking at outlooks right now, I think three out of four, right, it's high, but it's not super high. We want to be thinking longer when it comes to investing. We want to be thinking much, much longer than just 12 months. But for my purposes, I think we have momentum working for us right now. And that'll carry us, I think, through the first six months of the year.

JULIE HYMAN: Yeah, I liked your your philosophical note, where why do we arbitrarily pick these 365 days? It was very sort of existential. There is one thing that maybe could put the brakes on momentum this year. And that's the Fed, right, even though we know it's coming, even though we know the Fed's going to raise rates. And as you pointed out in your note to us, it depends on how fast the Fed goes. So I guess the question is, what is fast when it comes to rate hiking cycles?

MICHAEL ANTONELLI: Right, exactly. I looked at all the market data, like most of my peers have. And if you look at essentially what happens when the Fed starts hiking, right, that's not necessarily bad for stocks. One year after a Fed hiking cycle starts, the market's positive 78% of the time, so a little bit more than any average 12-month period, with an average gain of around 10%, because, obviously, they hike when the economy is strong.

The pace of hikes, that's really, really what you want to think about. Some of the fastest hiking cycles-- '87 was one of them. Some of the fastest hiking cycles are when you need to worry about the market. The problem is we just don't know that ahead of time, right?

So when we think about what we're going to be talking about this year on Yahoo Finance, on our blogs, on Twitter, it's going to be what is the expectations for hikes? How fast, how many? If we start to see more out of the dot plots, that generally is bad for the stock market. But again, we don't want to just take one thing and say it's bad for the stock market. We want to be cognizant, though, of the fact that faster hiking cycles have generally been bad for the stock market.

JARED BLIKRE: And just thinking about the Fed this year, it is an election year. And the thinking goes, some analysts are saying that the Fed's not going to stir the pot. They're going to be a little bit more conservative than they otherwise would have been.

But nevertheless, they're staring inflation-- they're seeing the whites of the eyes of inflation. And it seems to me Jerome Powell is a little bit scared, not frightened, but let's say a little bit concerned here. And that's something that we haven't had to deal with in some time. Given the fact that it's a midterm election year and gas prices are on the rise, just kind of put it together, is the Fed possibly caught behind the eight ball already?

MICHAEL ANTONELLI: Yeah, you hear that a lot. People wonder whether the Fed's kind of trapped or in a corner or they're kind of forced to do something. As a market guy, as an ex-trader, as a strategist now, I tend to look at the market for all my clues, right? The market will force the Fed's hand if they've gone too far. You saw that at the end of 2018.

So I think they will be forced to hike. Certainly an election year might change the dynamics of that. But I still think what they're staring in the face, like you said, in terms of inflation and the general economic environment, I think they're going to be forced to hike. Whether they do two or three this year, I would probably lean to two. I've actually started to see some people say that the Fed might cut this year because they go so far and then they're going to have to-- they're going to have to pull back the reins.

But remember, the market forces their hands. And also remember when the market predicts a hike or a cut, it's almost always correct. So if you see those probabilities up, 80%, 90% for a hike or a cut, the market almost always nails that. So keep an eye on those probabilities.

JULIE HYMAN: So, Mike, put it all together for us. Give us some specifics on groups that should be part of people's strategy next year-- this year. I got to get used to that.

MICHAEL ANTONELLI: Sure, sure. Well, this next 365-day period-- if you're worried about the Fed hiking and you're worried about a faster hike cycle that might hurt the market, you want to be looking at defensives and food and beverage and household and personal products. If you want to play momentum, if you want to play the tailwinds that have continued into this month, you're looking at the technologies and the industrials and the energies.

So I guess it depends on your view of the Fed, right? That's really, really important. I will say that one of my themes for this year is that I think earnings will be better than expected. We're looking for about 223 right now. So Julie and Jared, all we need to do is get to about 236, 237, and if multiple stay the same, that's S&P 5,000, which I do think we see at some point this year.

I think earnings will be better this year. We'll still be watching the Fed. So really, the sectors you want to play in are predicated on what your view of the Fed's actions are or whether you just want to continue to play the trends that keep going.

Again, I'm always on here saying I think housing is a great sector. I still stand by that call. I think there's plenty of fun, great names in housing. We could talk about that another time.

But I'm excited for 2022. But remember, it's just 365 days. You need to be thinking longer than just 12 months, my friends.

JARED BLIKRE: Well, let me pick it up here. So you talked a little bit about some of the sectors. And you said the sectors that you like depend on what your view of the Fed is. But what do you like right now? Because we've seen value stocks, like energy, the best-performing sector of last year, do you think that continues? Do we see financials, which have been perking up again recently, does that continue? Where are you seeing the money flows right now?

MICHAEL ANTONELLI: Yeah, so like I said, when I look at at-- at the end of every month, I look at what sectors are doing well, what sectors are doing poorly. What sectors went out at all-time highs? Again, industrials, technology, consumer discretionary, those are all at all-time highs, housing same thing.

I continue to like those sectors. I continue to like technology. I continue to like discretionary, because consumer balance sheets are really strong. Housing prices are really strong. The wealth effect of asset prices is still really strong. I like to continue to play those.

But if I see the Fed start to hike faster, if I see the market's expectations start to shift, then I'm going to move towards those other ones I mentioned earlier. So in my view, you stick with the stuff that's been winning. And as a strategist, I always like to look at how are they doing relative to the market?

Stick with sectors that are relative winners. And all those I just mentioned are rising with the market. So stick with the stuff that's working for now. I don't think you need to change your mind until the market starts changing its mind about the Fed.

JULIE HYMAN: All right, Mike, good to see you. Mike Antonelli of Baird, always good to catch up with you. And happy new year.