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Tech companies are 'not going away just because the market is rotating over to cyclicals': Antonelli

Michael Antonelli, Baird PWM Market Strategist, joined Yahoo Finance Live to discuss the day's market action and he breaks down the tech sector's performance amid the market rally.

Video Transcript

SEANA SMITH: Great to have you on the show. The vaccine news today clearly exciting investors. You can see that reaction in the Dow and in the S&P at this point. How does this change market dynamics, do you think?

MICHAEL ANTONELLI: Yeah, thanks for having me on, guys. There's a lot to talk about today. I'm excited to be here. When you think about the vaccine, it's not like we've solved the virus today. My state of Wisconsin is still struggling with quite a surge in cases.

When you see the vaccine as an investor, you ask yourself, what does that mean for stocks? Was does that mean for the market? Well, here's what it means to me. We're starting to price out the left tail risk, that real risky section of the virus is going to explode out of control again. We're going to be stuck in our houses. There'll be national lockdowns again.

The virus is what we're trying to fight here. We're trying to fight that. The vaccine is a way to fight that. And, you know, to me, that left tail risk being priced out, that's what's important. We want to get rid of that worst case scenario.

ADAM SHAPIRO: But that's a year down the road. I mean, when you look at-- let's assume all these vaccines work. They've got 50 million doses now, a billion by the end of next year. Johnson & Johnson will say a billion by the end of next year. So that leaves us in this kind of limbo. Not necessarily lockdown, but you walk the streets of New York City, parts of it look like a bad 1970s sci-fi film, empty storefronts, nothing going on.

MICHAEL ANTONELLI: Yeah, there's certainly going to be a transition from where we are now to the world of us all standing in Gotham Bar and Grill having a drink together like it's-- you know, like normal times. So we do need our government. And I hope that the curtain administration, the next administration, I hope we get some stimulus talk to get us through that.

Because I talked to our analyst, Baird's analyst, Brian Skorney, about this. And, you know, you're right. It's going to take a while to get people dosed with the vaccine, to get enough vaccine out there so that we're comfortable to get back to the economy. But as always with markets, my friends, it's animal spirits that matter. Animal spirits, and animal spirits start to come back to life when the market can see six months from now a different state of the world. And that's what I think is important.

We haven't solved this. But the market started to think, oh, movie theaters might be open in six months. Cruises might be happening in six months. If I was going to get married, I might be really looking to book a wedding venue here out in six months.

SEANA SMITH: I like the optimism, Michael. So going off of that with the animal spirits, I think is what you called it, coming back into the market, we're having this more rosy of a picture when you look four, six, eight months out at this point. So what are you buying? Are you betting on some-- on the reopening the names like you just mentioned? Or should investors still allocate at least a portion of their portfolio to what's been working, some of those big tech names?

MICHAEL ANTONELLI: Yeah, I think you nailed it. I think you absolutely nailed it. To say that, oh, let's go rush into the cyclicals, well, they just had a big move today. You know, unless you were there pre-open, you're going to be chasing a real high momentum sector right now. I think personally, what you said is right. There are tech companies that are doing a great job. Great products, great innovation. They're not going away just because the market has rotated over to cyclicals.

You know, I think you can still be in some tech names. There's lots of great names in that sector that I think you should stick with. But now we need to start layering in the housing, the healthcare. Maybe you layer in some industrials. You're playing for the next six months. You're not playing for today.

I also think you might be to start to look international. I went on Twitter last night and looked at the Nikkei. Nikkei priced in dollars has a 20-year base, and it's bumping up against the top of the 20-year base. So you might need to start to look internationally, too, not just domestically.

ADAM SHAPIRO: Any emerging markets? Because I heard a lot of people this morning saying take a look at India. Would you buy some of the funds that might give you exposure there?

MICHAEL ANTONELLI: Yeah, I think-- again, I think international-- the US has been trouncing the world for the obvious reason-- tech. But things are cyclical. Markets are cyclical. Sectors are cyclical. I think there's lots of places to look abroad for a resurgence. The vaccine will be all over the world, too. It won't just be in the US. So I would emphasize to our listeners, to our investors, that we want to stay invested in the market so we get days like today.

You know what the biggest risk is in the market? You guys ready? Something we'll never see, the pandemic. The risk that we can't see are the true risks. But right now, we're comfortable with the way things are shaping up six months out.

SEANA SMITH: And Mike, real quick, what about small caps? We saw Russell 2000 hitting its first intraday high today in two years. Any value there?

MICHAEL ANTONELLI: Yeah, I mean, everybody's been talking about the value growth trade all the time. I think small caps, now is probably the time you can dip your toe in there and say, I'm looking at the small cap sector. We have the 10-year yield rising. Again, if you're a small cap investor, you're looking for that curve to steepen.

You've got the 10-year close to 1%. The bond market isn't kind of disagreeing with us here. So yeah, I think now is a great time to call up somebody and say, let's think about a small cap part of our portfolio. There's lots of good options out there. The menu is very deep right now, my friends. Just make sure you're choosing from the right list.

SEANA SMITH: All right, Michael Antonelli, great to have you on. Market strategist with Baird, we'll talk to you soon.