The bull scenario for markets ‘is not a soft landing’: Strategist
Cannacord Genuity Chief Markets Strategist Tony Dwyer joins Yahoo Finance Live to discuss Fed Chair Powell’s remarks at Wednesday’s FOMC meeting, rate hikes, and the outlook for the economy.
Video Transcript
BRAD SMITH: Is this the shift for the markets that we should be waiting for, or should we dial back the euphoria? Let's ask Tony Dwyer, Canaccord Genuity. Canaccord Genuity chief market strategist Tony, thanks for taking the time here today. We'll put that question to you. Disinflationary, is that the shift or the pivot in tone, at least, that the markets were looking for?
TONY DWYER: Well, it's what is supposed to happen when you have economic weakness, and you start to see a drop in activity and especially final demand. You're supposed to have disinflation. So our view has been that inflation isn't the issue for-- it's actually been this way for the last few months. Inflation is not the issue. It's going to ultimately be economic activity and the unemployment rate. So each comment that he makes is taken as gospel. But as you know, it's pretty volatile around whether it's right or wrong.
JULIE HYMAN: And Tony, in your note, I love your analogies. We love analogies in general in strategist notes. This morning, you counseled patience in your reaction to the Fed. You talked about a slow cooker pot roast as the way to go. Talk to us about what you meant.
TONY DWYER: Julie, as you know, for all these years that we've talked to each other, I think I get more stuff out of my headlines than I do my dad, but anyway, every single word-- like, "disinflation" is the word today. And clearly, that is showing some strength in the market. The market has already been very strong coming off of that-- the low for a lot of the mega-cap tech stocks. But we're taking it-- it's like trying to eat a pot roast out of a microwave. Do you want to eat it out of a microwave, or do you want to eat it out of a slow cooker?
Guys, this is what is supposed to happen. I think I probably underestimated the positive effect of this transition from solid growth to negative growth. It would be historically unique where-- given where the Conference Board leading economic indicators are, where the yield curves are, to not have a recession. So I think what I underestimated was the positive influence that would have in an oversold tech sector and some of the mega-cap stocks, but ultimately, we're in this transition where the pendulum is swinging. And right now, it's in the sweet spot.
The call that the market is making is that it won't go to the more difficult position of potentially negative economic growth. For example, Julie, have you-- I can't remember. I've been doing this about 35, 36 years. I can't remember when cost cutting was the new buy signal. Right? So you look at some of these--
JULIE HYMAN: Yeah, no, it's unusual.
TONY DWYER: You look at some of the companies that are out there. It's all about maintaining margins. And that typically happens when you have a weakening end demand. So in our view right now, for right now, for the viewers, the fundamental side, I think, limits your upside because you have the potential for this recession. And the downside is probably protected by just the sheer momentum that we have. Ultimately, it's going to come down to the slow cooker, the unemployment rate, and when that defines if or when the recession is going to begin.
JULIE HYMAN: Sozz?
BRIAN SOZZI: Tony, I would eat a pot roast out of the microwave. I'm just saying.
TONY DWYER: You can. Have at it.
BRIAN SOZZI: Well--
TONY DWYER: I'd rather have it out of a slow cooker.
BRIAN SOZZI: Fair enough, but look, you know, what we heard-- anything you heard from Powell yesterday, to you, would that suggest rate cuts of any kind, even one, are in the cards this year?
TONY DWYER: Brian, our base case has been that they're going to get aggressive by the end of the year. So we thought that-- we had continued to think that the market goes to back to the October lows in the first half on the back of a recession. But it gets nasty enough where the Fed starts to more aggressively cut rates than the market is anticipating. And maybe that's getting pulled forward to some degree.
But to me, the bull scenario is not a soft landing. For example, today, when you have the continuing claims and initial unemployment claims, again, near the best levels of the cycle, that's not suggestive of a labor market, which is what Powell is focused on, that is easing. So what if we get this period-- if you get a soft landing, you still have an elevated inflation rate, and that keeps the Fed higher for longer. In a leveraged system, what you need is a steepening of the yield curve because rates are coming down more aggressively, and that allows you to look through the coming economic weakness.
So, to me, the soft landing scenario isn't the bull story. It's a much more aggressive-- or-- much more aggressive-- it's a decline in economic activity that brings about more aggressive rate cuts.
BRIAN SOZZI: Always top analysis for us. Tony Dwyer, Canaccord Genuity chief market strategist, we'll talk to you soon.
TONY DWYER: Have a great day, guys.
