The Federal Reserve may have new incentives in the second quarter to cut rates more deeply this year.
Canaccord Genuity's Tony Dwyer believes the deteriorating labor market and declining inflation will ultimately push the Federal Reserve to act.
“I'm not saying they have to go back to zero, but they have to be more aggressive,” the firm's chief market strategist told CNBC's “Fast Money” on Thursday. “One of the most aggressive topics I talk to clients about is how bad the incoming data is.”
Dwyer argues that falling participation rates in employment surveys are distorting data in the Bureau of Labor Statistics' employment report. The next monthly jobs reading is due Friday.
“It's not that they're manipulating the data. Conspiracy theories go crazy with this stuff. It's really that they don't have a good collection mechanism. So the reviews are significant and most of them have now been negative.” Dwyer said. “Our approach now is that those rate cuts are what is needed.”
At the Federal Reserve's March policy meeting on interest rates, officials tentatively planned to cut rates three times this year. They would be the first cuts since March 2020.
Dwyer hopes the rate reduction will give him finance, consumer discretionary, industrial stocks and health care actions a boost. The groups are positive this year.
“Our call is to embrace the broadening theme of weakness rather than simply increasing mega-cap weighted indices. The top 10 stocks still account for 33.7% of the total SPX. [S&P 500] market capitalization,” he wrote in a recent note to clients. “History shows that it is historically high and does not last forever.”
According to Dwyer, market performance will be much more consistent from the end of this year to 2025.
'It's not just the Mag 7'
“This comes from a widening share of earnings growth. It's not just Mag 7,” he said.Easy money.”
The “Magnificent Seven”, which are made up of Alphabet, Amazon, Apple, Metaplatforms, microsoft, NVIDIA and teslais outperforming the broader market this year: up 17%, while the S&P 500 It is 10% higher.
The S&P 500 closed at an all-time high on Thursday and just posted its biggest first-quarter gain in five years.
“When you're that overbought and that bullish, you just want to wait for a better opportunity,” Dwyer said. “In our view, that comes with worsening employment data that drives rates down. You have to worry about the economy. That's when I want to get in.”
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