Nvidia (NVDA) wrapped up its GTC event on Tuesday with much enthusiasm for the company's new announcements. Wall Street is now turning its focus to the looming outcome of the Federal Open Market Committee's two-day meeting.
Baird Managing Director and Market Strategist Michael Antonelli joins Yahoo Finance to discuss why he believes the market's focus should be redirected from the AI rally and the Fed.
Antonelli points to the fact that earnings are at their highest level in history, calling earnings "the next catalyst" for the market: "We keep asking the Fed to cut and they keep saying we're watching and then the CPI comes out hot and then they say we're watching and we just keep doing this cycle. Will they cut? Won't they cut? Does the market care? If CPI is coming in hot, and they keep pushing out cuts, why are we at all-time highs? Does the market just not see this? Clearly it does and I think, again, we're overlooking the simple answer which is that the economy is fine , the consumer is fine, and earnings are rising. The Fed is important, yes, but we are putting way too much importance on dot plots and we need to think about the stuff that actually matters to the market right now."
JOSH LIPTON: Now that the Nvidia event is behind us, the market's focus is on the Fed decision tomorrow and despite concerns about rates staying higher for longer. Stocks posted gains on the day with the S&P 500 closing at a new all time high. But our next guest says investors shouldn't be focused on AI or the Fed. The next true catalyst is earnings season, which just a few weeks away here.
Joining us now is Michael Antonelli, Baird Managing Director and Market Strategist. Michael, I do have to start on the markets, though. Listen, Mike, we end today the Dow tacks on another 300 points here. The SPX notches a record close. These things seem pretty good. Where do you see the market headed here in the near-- kind of near to intermediate term?
MICHAEL ANTONELLI: I love that I got to follow my friend, Miles. That's-- he's one of my guys. So I looked at my board up here the number of times I've been on Yahoo Finance. And I've been at New all time highs three times. So I'm counting myself as part of like the good, good membership of Yahoo Finance.
I-- listen, I think the market is what it is. And we're overthinking this whole thing. We're totally overthinking this whole thing. Let's put the dot plot aside for a second. Let's put NVIDIA and Rockstar status aside for a second. Earnings are at their highest level in history. Earnings expectations 12-month forward are at 249.
We are at all-time highs. Why? Because earnings keep going up, earnings estimates keep going up. Can that change? Obviously, it can change. For sure, it can change. But we have a consumer with a solid balance sheet. We have earnings estimates going up. We have this AI theme. Things are good. We're overthinking this. Let's just focus on the fact that earnings season is the next catalyst, not the dot plot. I think it's not the dot plot. Even though I agree with Miles, it's probably like two or three
ALEXANDRA CANAL: OK, Michael. I'm going to push back a little though, because we do have inflation that is pretty high. And there have been stickier areas of inflation like shelter, for example. And really, the housing issue seems to be an impossible scenario to navigate in some ways. How do you think the Fed should approach those areas that just don't seem to be coming down?
MICHAEL ANTONELLI: And that's it, right? We can look at CPI over the past six months, it's annualized in about 3%. But if you were to take out shelter, it's 1.8. I know that's kind of lazy to say take out something that actually everybody consumes, so I'm not going to play that role. OK, yes, shelter is high. It's high for basically structural reasons. We don't have enough homes and the places that need more apartments or slow to get new apartments.
So we're in this kind of structural problem that the Fed can't solve. The government can't really solve it. We're in this demographic patch, where millennials all of you guys are buying so many homes, we don't have enough of them. So we're in these kind of structural situations that the Fed's going to have to like just acknowledge and say, shelter is not coming down as fast as we thought. And there's really not that much we can do about it other than slamming the brakes on the economy.
But again, how many people have a 3% mortgage out there? So, so many. So, so many. So you can't make those people move. It's kind of an intractable problem here.
JOSH LIPTON: No, listen, I get you, Michael. If I was locked in at 3%, I was-- I'd never be moving. Let me ask you, though, what bottom line do you expect to hear from the Fed tomorrow? And when do you think, Michael, they start easing?
MICHAEL ANTONELLI: They're going to have to push it out, but they can't push it out too far, right. They can't push out these-- they can't push out the cuts towards the election, then you're going to just start to drum up all sorts of like unnecessary concerns about cutting around an election. So if they're good, they're going to guide. They're going to have to guide sometime a couple of months before that election season really starts to ramp up.
You know, we keep asking the Fed to cut, and they keep saying we're watching. And then the CPI comes out hot, and then they say we're watching. We're just keep doing this cycle. Will they cut? Won't they cut? Does the market care? I mean, if CPI is coming in hot and they keep pushing out cuts, why are we at all-time highs? Is the market just not see this? Certainly, it does.
I think, again, we're overlooking the simple answer here, which is that the economy is fine, the consumer is fine, and earnings are rising. The Fed is important, yes, but we're putting way too much importance dot plots. And we need to start thinking about this stuff that's actually matters to the market right now. And that's the thing I've mentioned about six times so far.