Stocks sell-off after win streak in 2024. But is that okay?

Stocks (^GSPC, ^IXIC, ^DJI) close Tuesday lower after January's Consumer Price Index (CPI) print sparked a sell-off. Baird Managing Director and Market Strategist Michael Antonelli weighs in on market patterns following the series of record highs for the S&P 500 in 2024, telling Yahoo Finance "it's probably time for a pullback, time you get one of your garden-variety 5% pullbacks."

Antonelli links the CPI print to the Federal Reserve's ability to pull off a soft landing scenario — introducing the idea of a "trampoline" landing.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JULIE HYMAN: So for more on how investors should digest the selloff, let's bring in Baird Managing Director and Market Strategist Michael Antonelli. Mike, what a pleasure to see you. It's been a minute. So I guess when a selloff like this happens, it helps to contextualize it, right? We haven't seen one like this in a while. It's true, but is it the start of something bigger or is this just a one day blip?

MICHAEL ANTONELLI: At least we have something to talk about because the market's just basically gone straight up since January. So I'm excited that we get to talk about this. And I'm glad to be on with you guys again. Yeah, that is the question that I'll write about, that I'll speak with clients about, that we will talk right here about is this the start of something bigger.

And certainly there are indicators you should be looking at to wonder whether that's true or not. The dollar is one of them. You guys mentioned the dollar briefly. That will be something we will continue to need to monitor when the dollar strengthens. Stocks struggle. It's been like that for a while now. And technicians are keen to point that out. So I think you'd want to watch the dollar for sure.

The VIX has got some quirks about it right now, with options expirations and some open interest at certain strikes. So that's certainly had a crazy move today. But I think there's some options action there. I do think it's probably time for a pullback. I think it's time that you get one of your garden variety 5% pullbacks. And my friends, you get three of those every single calendar year. All of them.

JOSH LIPTON: And, Mike, I'm curious how you think this might change kind of the narrative here. And there seem to be a story. We heard from a lot of strategists, at least more optimistic ones, Michael. And the kind of narrative you heard was as rare and tricky as it is, it looks like Jay Powell has landed, has engineered the soft landing and inflation is cooling, and the cuts are coming. When you saw that January CPI print today-- and I guess you see GDP and labor market and CPI, do you think maybe that storyline has been kind of-- has been upended here?

MICHAEL ANTONELLI: Not only has it been upended, Josh, is it actually no landing. We talk about soft and hard. It is actually no landing. There's also this view of trampoline landing. I think one of my friends-- my friend Oliver kind of pushed that one out.

JOSH LIPTON: What is that, Michael? What is that? That is a new one for me. Trampoline landing, what is that?

MICHAEL ANTONELLI: I like it. I like it. It's this notion that we kind of hit the ground and then bounce right back immediately, like we did have that kind of two quarter, negative quarter back in 2022. We just bounced immediately. So a trampoline, we're back right back to 3% growth. I like either of those takes at this point. And CPI, as I've said many times before, years ago, I'm still getting no credit for it.

This is like the end of World War II. This is not like the 1970s. And at the end of World War II, inflation at 20% and came down. But it didn't come down in a straight line. It bounced its way down and that's what's happening right now. Post-crisis, we're bouncing our way back down to 2%. We should not have ever expected it to go from 9 to 2 in a straight line. No landing, trampoline landing, I think we need to shift the narrative to those from soft or hard.

JULIE HYMAN: So what does all of that mean then for stocks, right, especially coming off an earnings season where growth looks pretty good, and it's not just the Magnificent Seven where we're seeing growth.

MICHAEL ANTONELLI: I think the narrative for stocks is still quite good based on the economy, based on all the things that were tailwinds from last year. Remember this is an election year, that will certainly start to take all the oxygen in the room as the year goes by.

One thing you would notice if you followed my work or some other strategists' work, is that the first quarter of election years are typically volatile. They're typically like this. You would expect the volatility to be in the first few months of the year. Why? Well, the market's still trying to come to grips with the candidates and the policies and all the things that surround an election. So this is not frankly, all that surprising to me. I do think that the magnitude of today's move was eye-opening. It just goes to show people were ready to hit the sell button.

But I think the narrative around where stocks can go this year are still quite good, based on a bunch of economic indicators that are still strong. We're looking at 3% GDP growth, wage growth, all these things.

JOSH LIPTON: In terms of risk, though, to that call kind of downside risk, Michael, where do you put geopolitics there? And are you-- are you in any way surprised, Michael, by the way, despite that, you look around the world right now, Russia, Ukraine, Israel, Hamas, Red Sea, markets have basically shrugged it off.

MICHAEL ANTONELLI: I get this. It's a good question, Josh. I get this question all the time in my career. All the time from clients. I get them live. I get them from friends. I get it all. Geopolitical events tend to have short-term impacts on the stock market. You can look all the way back to-- I don't know. Let's talk about the Cuban Missile Crisis. It had a very small impact on the stock market-- very, very small. That was basically the closest the world has ever come to nuclear annihilation.

So geopolitical does tend to have very, very limited impacts. And I say to clients, Apple computer still sells iPhones, and Costco still sells hot dogs, and Starbucks still makes lattes, even when there are hot spots around the world. And that's what you really, really need to focus on.

So I am quite unsurprised by the market shrugging this kind of stuff off. What are the downside risks? An economic slowdown. That to me is the real downside risk, and I watch for it all the time.

JULIE HYMAN: Mike, I feel like you and I have even had this conversation before about geopolitics.

MICHAEL ANTONELLI: Yeah. Yeah.

JULIE HYMAN: Getting a little deja vu. Great to see you. Thanks so much for joining us. We really appreciate it.