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Don’t Fight the Fed, Go on the Offense, Says Stock Market Strategist

Last Updated September 23, 2020 1:11 PM
Gerelyn Terzo
Last Updated September 23, 2020 1:11 PM

We’ve all heard the saying, ‘don’t fight the Fed.’ Canaccord Genuity Chief Market Strategist Tony Dwyer is taking that phrase literally, saying in an interview with CNBC that it’s time for investors to go on the offense  with their portfolios thanks to the Fed’s handiwork.

Like it or not, the Federal Reserve has made it clear that it intends to bolster its balance sheet via an asset purchase program. While details remain scant for now, we know the asset-buying won’t be of the same magnitude as during the Great Recession. In fact, Fed Chairman Jerome Powell insists that it’s not quantitative easing; if it walks like a duck and talks like a duck, however, chances are the stock market is going to interpret it as just that.

“The guys printing the money told you they’re going to be printing more money. And that means an offensive playbook,” said Dwyer.

It seems he is not the only one who feels that way, with all three of the broader indices finishing the day in the green, including the S&P 500, which is back above the 3,000 level and is inching closer toward a record high. Other catalysts include a more positive tone on the U.S./China trade negotiations and an earnings season that is looking up.

Fed comments may not be swaying the stock market performance this week because monetary policymakers are in a quiet period ahead of next week’s meeting. But they’ve already tipped their hand with a balance sheet expansion, and Wall Street is taking it from there. Morgan Stanley Interest Rate Strategist Kelcie Gerson  reportedly said in a note to clients:

“Despite the fact that the size and intention of the Fed purchases would not be in line with those of a QE program, we do believe the market could interpret it as such.”

Millennials Are Yet Another Catalyst

One telling sign could be the September Existing Home Sales Report, which is due out Oct. 22. Wells Fargo stated in a report:

“The effects of lower mortgage rates are becoming more noticeable in the housing market…Mortgage rates continue to trend downward and averaged 3.6% during September. Through the monthly volatility, improved buying conditions should continue to entice buyers back into the market, and we expect existing home sales to trend higher in coming months.”

Canaccord’s Dwyer pointed to millennials reaching the milestone of turning 30 years old, which is about the time they begin settling down, buying a home, and starting a family. The low interest-rate environment is making it easier for them to do so and serving as yet another catalyst for the economy in the interim.