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Editor’s note: Tony Dwyer, U.S. portfolio strategist for Canaccord Genuity, and his colleagues author a widely respected monthly overview of market conditions, technical factors, and future market outlook called the “Strategy Picture Book.” The following provides an excerpt from their Nov. 5, 2019, report on the macro market outlook.
The generational Fed change is significant

We cannot emphasize enough the importance of the generational change in the way the Fed views inflation by fear of lower rather than higher inflation. Last week when Fed Chair Powell was asked what would make him raise interest rates, he responded by suggesting only an outsized rise in inflation.

He followed that up with emphasizing that sustainably low inflation and forward inflation expectations remain below the Fed’s desired 2.0% level and were not transitory. Our translation is that the Fed won’t raise interest rates anytime over the next year and may lower rates again if there is a meaningful change in their assessment of moderate economic activity. That is a clearly defined “Fed put” for the equity market through sustainably higher valuations.

There is no reason to change our front-end-loaded 2020 SPX target of 3,350, led by offense

The sustainably low inflation and subsequent Fed reaction highlighted above reinforces our positive core thesis and four main reasons to be bullish:

  1. The folks printing the money globally continue to tell us they will maintain a highly accommodative stance.
  2. The corporate credit market remains open and bank lending standards remain easier in the most recent data.
  3. There is a demographic tailwind with the millennials born in the peak year (1990) turning 30 amid solid employment, good confidence, and low rates.
  4. There is an inflection in global manufacturing off historically weak levels.
History suggests buying probable consolidation

The S&P 500 (SPX) has reached into record territory and is up over 22% year to date and 6% from the early October low, which sets the stage for a bit of choppy consolidation. We can qualify “choppy” using prior instances of >20% SPX gains through October since 1950. We found that any pullback is limited to under 2.5% from the end of October, with a median drop of just 0.95%.

The message is clear: Use any pullback as an opportunity to add exposure given the median gain of 5.92% in the last two months of the year, and 19.15% the next year.


Source: Bloomberg, Canaccord Genuity

The opinions expressed in this article are those of the author and do not necessarily represent the views of Proactive Advisor Magazine. These opinions are presented for educational purposes only.

Tony Dwyer joined Canaccord Genuity in March 2012 as the firm's U.S. equity market strategist and a senior managing director. In 2015, Mr. Dwyer was named co-director of research, and currently sits on the firm’s operating committee. Prior to joining Canaccord Genuity, he served as equity strategist at Collins Stewart, and also held the additional role of director of research while sitting on the firm's executive committee. Mr. Dwyer started his career at Prudential-Bache Securities in 1987 as an equity market strategist. canaccordgenuity.com

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