Market is a pulling back on overbought conditions, but we won't see a plunge: Canaccord's Tony Dwyer

Let’s get straight to today’s action with our first guest Canaccord Genuity Chief Market Strategist, Tony Dwyer. Tony, good afternoon. So your your takeover on what’s happening in these markets and you say to add on a pullback, which suggests maybe don’t add now. Yeah, we, we have been in that case for a little while now. This is John. This is kind of an interesting time. It’s very rarefied overbought territory. So we use a weekly stochastic for the S&P 500, which is a technical oscillator for only the 7th time in history. It’s above an extreme overbought of 90. I know I’m talking technical here and I’m a macro guy, but it’s it’s only the 7th time it’s been over 90 for 18 consecutive weeks. It looks like, you know, unless there’s a major hit this week, it’ll be 19. It’s only done that twice before. So it’s just in an extreme overbought. It doesn’t stay there forever. But I also can’t find any data that says we should really plunge just kind of a pullback to get rid of some of the excesses and to really generate that next leg higher, OK. And you also say to expect some further broadening of the market once we work through some of these overbought extremes and progress through the second-half. But you know when we pull back these days just the Russell often is getting killed like it’s down almost 2% today. Does that mean once we do get some real further pull backs though you would emphasize mid caps and small caps? I do. It’s it’s much more of a generational call or a long term call for us John, than a trading call. So over the last couple of years I’ve done a pretty good job of of renting stocks when they get oversold enough and then feeding into it as they rallied because higher interest rates and and weaker earnings distribution is really negatively impacted the average stock or the small cap stock. So what makes for a rental versus an an ownership on weakness? And it comes down to two things. You have to have interest rates go in your favor. I still believe when the Fed says they’re going to cut, I believe they will. If you have a weak employment number, remember the negative revision we had in the last payroll employment report wiped away a lot of that feeling that while they may not even cut at all. So you need lower interest rates and you also need a broader distribution. I think people would be surprised that last year if you take out the MAG 7, according to my earnings wizard at LS CGI Best, TJ Dillon, earnings would have been negative outside of the. If you take out the MAG 7 growth out of earnings for calendar year 2023 and in this quarter, it’s the same thing. You get a broader distribution of earnings as we go into the fourth quarter of this year and into next year. So that’s why lower interest rates and a broader distribution of earnings growth and participation is really what drives wanting to own stocks on weakness versus renting stocks on weakness. But what if the Fed doesn’t cut or doesn’t cut as much as the dot plot currently suggests? And I asked that on a day where Rodger Ferguson, former Fed official, came on CNBC earlier and floated the possibility that that could in fact happen. Maybe it’s still a minority view, maybe it’s still not a strong likelihood, but he is also seen to be somewhat of a Fed whisperer in his own right too. So So what happens then for the market? What’s positioned for that possibility here Morgan, I really think we got to, you know they say their data dependent. The problem is it’s very incomplete data. And I’ve gone through a couple of times how the survey rate when you get the payroll data is so flawed because it’s very incomplete. But ultimately remember that the Fed only expected in in 2022, in the beginning of 2022 there was only going to be three rate hikes for the cycle. So the Fed can change. You know they’re just as as good as me at being wrong and they will change with the data and I think that data, listen we’ve had a manufacturing recession for the last 18 months. So having an ISM on an inventory replenishment that may soften the blow if you have a services slow down with employment weakness that that really it it hasn’t happened. I thought it would have happened by now, but if you look at the NFIB hiring plans index at a cycle worst, the ISM employment is bumping along its cycle worst. The Conference Board leading employment index is right around its cycle worst. So where I’ll be wrong is if it is a no landing, I don’t know how you can do that without gas, but if you do have a no landing and rains, don’t go down.

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