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Canaccord Genuity chief market strategist Tony Dwyer is no stranger to bullish stock-market calls, but after a remarkable run for U.S. stocks over the past few weeks, he is now warning investors of a pullback ahead.
Bear markets “typically have three phrases — you get panic, the relief rally and then you get frustration,” he told MarketWatch in a Monday interview. “We’re just entering the frustration part, which is the epic battle between monetary policy and economic damage.”
Coming into 2020, Dwyer had one of the more bullish outlooks on Wall Street, with a year-end target for the S&P 500 index of 3,440, announced in early December.
But he downgraded his view of the market to neutral in late January amid high valuations and uncertainty over coronavirus, and suspended that target on March 16 as the fight against COVID-19 brought on a “near-total shutdown” of the U.S. economy. And while he said that it’s more likely than not that the S&P 500 already hit a bottom last month, he predicted the next several weeks will be painful for equity investors.
“Our plan is to go back on offense as the market pulls back toward the March 23 low,” he said.
“ ‘Even if we try to restart the economy, I don’t know too many people who are going to jump in an elevator or go to a sporting event too quickly.’ ”
Dwyer believes that traders will be deluged with ugly economic reports that reflect the magnitude of the economic pain felt by workers and businesses as efforts to fight coronavirus bring the U.S. economy to a standstill. “We don’t yet have an idea of the extent of the damage,” he said.
“The time to add [to equity holdings] was into the historic oversold condition in late March in anticipation of the relief rally, not after a 24% historic ramp off the low,” he added. Since March 23, the Dow Jones Industrial Average DJIA, -1.38%, the S&P 500 index SPX, -1.01% and the Nasdaq Composite index COMP, +0.47% all gained between 18% and 25%.
And while markets have rallied in recent weeks as the Federal Reserve has unveiled plans to backstop credit market and lend to businesses and state and local governments to the tune of trillions of dollars, it remains to be seen whether these programs — or new government spending aimed at supporting the jobless and small businesses — are enough to get the U.S. economy quickly back on its feet.
“I think it’s going to be a longer slog” for markets after the coming downdraft, he said. “Even if we try to restart the economy, I don’t know too many people who are going to jump in an elevator or go to a sporting event too quickly.”
Though most investors know its unwise to swim against the tide of aggressive central-bank action, the unique nature of the coronavirus economy must be taken into account. “You may not want to fight the Fed, but you don’t have to chase the rally,” Dwyer warned.
