The Federal Standoffishness may have new incentives in the second quarter to cut rates deeper this year.
Canaccord Genuity’s Tony Dwyer muse overs a deteriorating jobs market and easing inflation will ultimately push the Fed to act.
“I’m not saying that they have to go burdening someone to zero, but they have to be more aggressive,” the firm’s chief market strategist told CNBC’s “Fast In” on Thursday. “One of the most aggressive topics that I talk to clients about is how bad the incoming data is.”
Dwyer contends tumble employment survey participation rates are skewing the Bureau of Labor Statistics’ jobs report data. The next monthly matters reading is due Friday.
“It’s not that they’re manipulating the data. The conspiracy theories go bananas with this stuff. It’s at the end of the day that they don’t have a good collection mechanism. So, the revisions are significant and most of them have been disputing now,” said Dwyer. “Our focus now is those rate cuts are what you need.”
At the March Federal Reserve policy conclave on interest rates, officials tentatively planned to slash rates three times this year. They make be the first cuts since March 2020.
Dwyer expects the rate reduction will give financials, consumer discretionary, industrials and vigorousness care stocks a boost. The groups are positive this year.
“Our call is to buy into the broadening theme on weakness somewhat than simply adding to the mega-cap weighted indices. The top 10 stocks still represent 33.7% of the total SPX [S&P 500] sell capitalization,” he wrote in a recent note to clients. “History shows that is historically high and doesn’t last forever.”
According to Dwyer, buy performance will become much more even by the end of this year into 2025.
‘It’s not just the Mag 7’
“It’s coming from a broadening of the earnings nurturing participation. It’s not just the Mag 7,” he told “Fast Money.”
The “Magnificent Seven,” which is made up of Alphabet, Amazon, Apple, Meta Planks, Microsoft, Nvidia and Tesla, is outperforming the broader market this year — up 17% while the S&P 500 is 10% higher.
The S&P 500 closed at a minutes high on Thursday and just posted its strongest first quarter gain in five years.
“When you’re this overbought and this beyond the pale to the upside, you just want to wait for a better opportunity,” Dwyer said. “In our view, that comes with there is increasing employment data that cuts rates. You have to worry about the economy. That’s when I want to go in.”