Buy stocks on weakness that typically benefit from rate cuts, Canaccord’s Tony Dwyer suggests

Our next guest is interested in stocks that benefit from rate cuts. Tony Dwyer is the Chief Market Strategist at Canaccord Genuity. It’s great to see you here on set, Tony. It’s great to be here, Mel, it’s great to see you guys. So here’s the first question though. Rate cuts happen in the backdrop of the economy weakening or is it is it because I mean what what happens in so it it is weakening in the employment data. And I think something that one of the most aggressive topics that I talked to clients about is how bad the incoming data is. So I’m going to take you a little bit in the weeds here. There’s something called the initiation survey rate. It’s when I reach out to you and say how many people do you have fire, how many people do you hire? I’m the BLS, you’re the company. Before the pandemic, 70% of the companies would get back to the Bureau of Labor Statistics and say we laid off this many people or we hired this many people last in January was 27%. So we’re getting employment data. We got 167,000 job negative revision in the last payroll employment report. And it’s not that they’re manipulating the data. The conspiracy theorists go bananas with this stuff. It’s really that they don’t have a good collection mechanism. So the revisions are significant and most of them have been negative now. So I think that some of the Lululemon, some of the the consumer hits that have happened, if you looked at Lululemon a month ago, you’re, you know it’s up and to the right, you know, it’s, it’s parabolic, it’s like everything else. And if you look at the Russell 2000 a week ago, last Wednesday, it’s down for the year. So I think it’s just a little bit of perspective on, on the economy slowing and what it might mean for rates and the consumer. So, So what benefits in that environment where the economy is weakening and we do have rate cuts? Well, our focus now is those rate cuts are what you need, you need to kill the zombie, right. And the zombie is an economy that you’re waiting for it because of the inversion of the yield curve and the higher interest rates to slow down enough to go into recession until something happens with the Fed and lower rates, it’s going to be very hard to disprove that you can eventually go into a recession because you normally have our view is that the the vast all of the earnings growth from 20/23 was the MAG 7 according to our earnings wizard LSCG. It literally was a negative number for earnings growth last year X the MAG seven. It’s same for this quarter. It’d be a negative number. As we go into the end of the year and into next year, it’s much more even. So that’s where we’re calling for the broadening of the market. It’s coming from a broadening of the earnings growth participation. It’s not just the MAG 7. So if you get lower inflation and lower interest rates and start to get scared about the unemployment rate going up, that sets the stage for that real early cycle recovery we could get in those areas that benefit from lower rates. So what if you get a little lower employment but really not a lot of relief on the cuts, let’s say you get one, Does that change your outlook? It would. Where I’ll be wrong is if rates stay here or or actually go up. I I find it very hard to believe that that’s going to happen, Karen. Like if you think about when rates were going up, it was the end of the higher inflation where they did four rate hikes of 75 basis points at a clip to slow it down. The trajectory of the core PCE, which we get tomorrow is exactly the opposite right now. So if it goes down a little bit more and it stays on this trajectory, you get a continued move up in the unemployment rate. You get a continued move down in the inflation rate. Karen, I can’t imagine they’re going to go 25 basis points after going from zero to 550. They’re going to go O25 is enough. We’re going to get 0. So zero. That’s. Yeah, Yeah. So call it 2:00 to 5:00, I you know where that five and a quarter is the upper end, maybe it comes to four that’s enough to really kick start. That happens with weaker employment, that happens with weaker spending and that’s it. I’m not saying they have to go back to 0, but they have to be more aggressive to re and positive and re invert in whatever they do to get the curve back to normal. So we’ve gone from higher for longer, right. That was the mantra. And of course, exact opposite happened. Raised drop from 5:00 to 3:00, eight. Then at 38, consensus was there’ll be 6 cut, 7 cuts. That’s all off the table. Now it’s one, maybe none. What if there is just as you’re implying, nothing, they just stay pat and don’t stand pat. It’s a thing. By the way, it was a political term back in 1896 referring to patents, but it’s still a poker term. We should keep moving. Remember, they were only going to do 3 hikes, right? Three hikes. So three nights in the beginning of 22, they actually just somehow keep juggling the ball and do nothing. Do you think that is Goldilocks or that’s a problem? I I think that creates a bigger recession, a bigger problem. I think the Fed needs to get, I’m kind of on Steve’s camp. the Fed needs to get aggressive here. It’s remember when inflation was moving up and spiking like it’s moving down now. They were telling us they were only going to do 3 hikes. We’re good after three hikes. That’s the peak rate. Not so much. So if you get weaker employment, the whole picture here for the economy is we’re at full employment. Manufacturing’s been in a recession for the better part of two years, non res constructions turning over so really quick ’cause I know we don’t have a lot of time left, but I heard you say zombie about our refer to our economy in zombie terms. And yet we we also have a dynamic also out there for markets where financial conditions are out of control, out of control. Without Fed, none of this seems to make sense and yet you think the Fed hasn’t moved fast enough and I think they lit the market on fire last week. Oh, they absolutely lit the market on fire by staying with three. Remember they revised the growth and inflation up but stayed with three cuts. He also said we’re at the peak of the cycle in terms of rates. That was not Gray. So I’m not saying that we go into a service based recession in the market collapses. There is no history I can find with this kind of momentum that calls for market collapse at this point. When you’re this overbought and this extreme to the upside, you just want to wait for a better opportunity. In our view that comes with this worsening employment data that cuts rates. You worry about the economy. That’s when I want to go in not not levered long at, you know, after the kind of rates that we’ve been to or the kind of moving stocks we’ve been talking about.