'We want to look at the sectors that would benefit from us inching back to our former lives': Strategist

Michael Antonelli, Baird PWM Market Strategist, joined The Final Round to discuss his market outlook as the election approaches and the sectors he's paying attention to ask state continue to reopen amid COVID-19.

Video Transcript

MYLES UDLAND: All right, welcome back to The Final Round here on Yahoo Finance. Myles Udland with you in New York for a bit more on the market and what we need to know heading into the election. We're joined now by Michael Antonelli. He's a market strategist with Baird Private Wealth Management. So Mike, let's just start with the conversations you guys are having as it relates to the election. It seems like every strategist that comes on says that all their clients want to talk about is the election. Is that the case with your group?

MICHAEL ANTONELLI: Yeah. I certainly think it certainly has supplanted the pandemic as the top question. When we do events, when we're doing kind of conversations with them, a lot of them are worried about a contested election. A lot of them are worried that the election will cause some sort of spike in volatility or will cause some sort of uncertainty for a prolonged period.

The historian in me would like to point out that there were three elections in the 19th century that were decided by the House of Representatives or some sort of congressional intervention. So it's not like, in the history of the United States, this would be the first time that something unusual happen during an election.

DAN ROBERTS: Mike, Dan Roberts here. And, by the way, Marvel fan as well. I know you are, so good on that.

MICHAEL ANTONELLI: Huge fan.

DAN ROBERTS: You mentioned the possibility of a contested election. You know, we've had a couple experts roll through here in the last couple weeks and say, well, that's already baked into the market, that possibility. And I find that hard to believe, just because the various possibilities are myriad. I mean, you know, it started with we might not know by election night who won. Now it seems we've all gone way beyond that and we're getting some people say it could take a week until we know who the actual winner is. Hard to believe that the effect that would have on stocks in that week is already baked in.

MICHAEL ANTONELLI: We have to assume that the market has done all its projecting, all its discounting about the possible outcomes. I find it super, super hard to believe that a contested outcome would surprise the market. And surprising the market is generally what causes it to have the most amount of volatility. It's all people talk about. It's literally all people talk about right now, and that's not if we're going to have the election results on the night of the election, how long the contested portion will be.

So when I think about what-- what really shocks the market? Things that it doesn't understand. Worst case scenarios that it doesn't understand. March was all about how many deaths we're going to have? How long the economy's going to be shut for? You have to assume that a contested outcome is consensus. That's all I hear everywhere. And if that is consensus, maybe the surprise is we actually do know the winner within a day or two.

And I don't want to bet on consensus right now. I want people to remember the history of the market, the history the United States, and say we actually had a contested outcome in 2000. It wasn't even that long ago. So I'm not one of these doomsday kind of guys that says we're not going to know, the market's going to freak out.

MYLES UDLAND: That's right, this is an anti-doomsday show. Mike, thanks for joining us. So let's talk a bit about what the market setup, I guess, overall just looks like to you. I mean, you flagged for us the 50-day moving average. And I guess the follow-on there would be, in this kind of environment, does everyone sort of become a technician of sorts?

MICHAEL ANTONELLI: I think most people tend to lean on the moving averages as the most obvious thing. The market kind of hovers near it, everybody says it must be really important. So I guess that's to be expected.

Let's just take the backdrop of the market right now, which is this is a seasonal low point. If you look at the seasonality of the S&P 500, the low point is actually right now. We're actually at the seasonal low point. The ramp of the year end generally begins within the next week or so.

You have a Fed, a Federal Reserve, who has money at zero. Money is free. We know that all excess money over GDP goes into financial assets. We still have that backdrop. So a seasonal low point, you still have-- you have the Fed in the backdrop.

The way I look at that is, we'll probably spend a little time bouncing around the 50-day. You're going to hear a lot about the election. What we really want to focus on are the right sectors. What are the sectors to be looking at right now? The reopened sectors. I think we need to focus on the airlines, the cruise ships, the concert, Live Nation, all of those are kind of sitting at points where you'd like to see them continue.

MYLES UDLAND: And so I guess, then, that would be a separate reopening trade, the at home trade, which has already done well. I mean, does it sound like-- there's construction, some people have would be something to the effect of, short Peloton and go long Planet Fitness, this kind of idea. Is that sort of where do you think we need to be looking towards, if this thing does continue pointing in the right direction?

MICHAEL ANTONELLI: Right. The thing that I think investors should be looking at right now are all the back to work-- I'm sorry if I said it the wrong way, but the back to work sectors. We should be looking at the airlines, the cruise ships. We should be looking at the concert stocks. We want to see those do well right now.

San Francisco just said they're reopening restaurants. New York City back to school, right? So we want to see this inching back to the world that was pre-COVID, get a little tailwind behind it. Get a little tailwind behind that.

There were three phases of the 1918 pandemic. March, the fall, and then the spring of the next year. We're approaching the fall of this year. That was when the 1918 pandemic started to pick up again. So there might be a little bit of headwind. So that's why we want to look at the sectors that would benefit from us inching back to our former lives. That's what I'm looking at right now. We really want to see those do well. It's no joke anymore. Those have to do well.

MYLES UDLAND: And then, I guess, maybe we're kind of talking around the idea, but the state of the recession right now. I mean, in your view, is the recession over? Are we now talking about the beginning of a recovery? And how sensitive, I guess, might you be to incoming economic data as we get towards the end of the year? Every Wall Street job just took down their GDP estimates for the fourth quarter because of a lack of stimulus, but pretty much all of them are still calling for 5%, 6% growth next year, which doesn't sound very recessionary to me.

MICHAEL ANTONELLI: We're probably, you would guess, we're on the tail end of a recession that started in, call it February, March of this year. We had the fastest bear market in history. I think we're going to have a fast recession alongside of it. That kind of goes to the point of what sectors should we be looking at. The ones I mentioned earlier. If we're coming out of a recession, what do you look at?

The strategists say you look at industrials. You look at industrials. That would be a sector that would be really spicy coming out of a recession. Look at Caterpillar. Look at FedEx. Look at the rails. Pull up charts of UNP, CSX, NSC, any of those, those charts have really done some work. So if you're expecting the recession to be over soon-ish, the sectors that should do well is doing well. So that's where I'm kind of leaning on right now to tell me about whether the recession is over or not.

I do think that the unemployment data coming out will probably not have a big of an impact as some of the previous ones. We're start to slow down. We're expecting 800,000 instead of a million. So as crazy as those numbers are, I think that we're starting to get to the point where incremental gains now, instead of the chunky big gains.

MYLES UDLAND: All right. Mike Antonelli, market strategist at Baird Private Wealth Management. Mike, thanks for coming on. Next time we'll talk-- we'll do five minutes on the Packers, just to make you happy.

MICHAEL ANTONELLI: Definitely.

MYLES UDLAND: But everyone knows that story now, through the first three weeks of the season. All right, Mike, talk to you soon. Thanks.