Canaccord Genuity Chief Market Strategist Tony Dwyer joins Yahoo Finance to discuss what the 2020 election results could mean for the Federal Reserve and break down how a Biden win will impact markets.
MYLES UDLAND: There was a Fed meeting today. FOMC expected to release their latest policy statement at 2:00 PM. Jay Powell will hold a press conference at 2:30 to talk a bit about this and everything else going on in the markets.
We're joined now by Tony Dwyer. He's a Senior Managing Director and the Chief Market Strategist at Canaccord Genuity. Tony, great to speak with you.
In your note to us, you called Chair Powell the most important man in Washington. Obviously, we're all watching the election. But I guess kind of put that in context for us, in terms of how you're thinking about the Fed's role this point in the rally.
They've clearly established rates at zero for several years. We know what they're doing with QE. How are you, I guess, seeing maybe how investors might re-understand the Fed's, kind of, mandate, as we get through the next couple of years?
TONY DWYER: Well, thanks, Miles. I think the point of the election-- it's clearly a contentious election. Clearly, neither the Senate has been determined yet, nor has the White House.
It does look like the extremes have been removed. In other words, the market basically gave an inappropriate run up into the election day on this idea of a massive stimulus package on a big blue wave. And you literally just removed that yesterday.
For example, the KBW Bank stock index, the BKX, literally closed within $0.03 of where it closed on Friday, yesterday after the drop. So you basically neutralized-- I think all you've done in the election is neutralizing the tail risk, which leaves you with the most important thing, the most powerful person, whether it was Alan Greenspan, Ben Bernanke, Janet Yellen, and now Jerome Powell. It's the guys and gals making the money. And they've told us the plan for years to come. So our view has been similar to something that Brian talked about. It's when you couple excess liquidity with a synchronized global recovery, it's a pretty powerful influence.
BRIAN CHEUNG: Tony, it's Brian Cheung. So then, what is the most powerful man in Washington, that being Jay Powell, going to say in today's press conference at 2:30? It seems like the expectation is for the Fed to do nothing. They've already signaled they want to keep rates near zero.
So if they say anything, it could be some teeing up of quantitative easing, maybe in the December meeting. But what would you expect Jay Powell to say this afternoon? And why would that be important, as we get through this transition of power, headed into possibly next January?
TONY DWYER: I think he's just going to-- why do we need more quantitative easing? We have long rates down, right? You dropped 13 basis points yesterday. They haven't even had to buy any corporate debt. They could buy-- I believe it's in their facilities-- up to $700 billion in corporate debt. They've bought a total of a whopping $45 billion so far.
My credit folks aren't even checking with what the Fed is buying at corporates. Because all they have to do is reinforce what they've already said. The only additional thing, they might beg a little bit louder for fiscal stimulus. Which, you know, I found it interesting that Mitch McConnell's first statement was, OK, let's get some stimulus done, right? So I think the idea that now we're going to get no stimulus is probably as inappropriate as it was that we're going to get trillions of dollars of stimulus.
But this is an important point. The market typically goes down sustainably. Because it's either in or fears a recession. What causes a recession is companies have a need for money with limited access to it. They lay people off. And then, the households fall short of money.
We have a historic level of excess liquidity and money supply growth. Back in February and early March, when we weren't positive on the market, you had shrinking liquidity. You had no idea what the Fed was going to do with the economic shutdown in the COVID-19 ramp, right?
Now we know. We have the greatest money supply growth in the country's history. So I think that's the focus, versus the election.
JULIE HYMAN: Tony, it's good to see you. I'm curious, as I hear you talking here. Because, you know, as you say, Jay Powell has hammered fiscal stimulus. And he's expected to do so again today. So I guess my question comes back to the sort of cliche one that we've been asking all year, which is are the markets the economy?
In other words, what you're describing is a scenario that benefits the markets a lot. We may not be going into recession. But there are still an awful lot of people out of work. Is that eventually going to be a problem for the economy on a broader basis-- consumer spending, for example?
TONY DWYER: Clearly, we need the stimulus. And my point, Julie, wasn't that we're not going to get stimulus. I think we will. I think Mitch McConnell was very clear in his first press conference. We want stimulus.
All right, so you know, the politics of it, the-- I don't know-- the hateful points both sides are going to ebb. One thing that if Vise President Biden does become the president, he is a more moderate center. And he's got a history of trying to get along well. So hopefully, we'll be able to get something done more quickly.
But clearly, some small businesses and households need fiscal stimulus. It's a really big deal. I think it will get done quickly. I don't think politics is going to stop it anymore, once it's figured out over the next month or two.
So then, you'll have that access fiscal stimulus that's on top of the money that's already there. I think, Julie, one thing that's really important, on the small business side, the NFIB-- the National Federation of Independent Businesses-- in their most recent reading showed a spike higher in optimism, despite the lack of a fiscal stimulus and political discourse in September. So October will probably take a little bit of a hit in the data. But it's not like the small business owners are screaming. I think they believe they'll get help.