Tony Dwyer is one of the people who when he speaks, we listen. There aren’t that many, Tom Lee, Adam Parker, Brian Belski and Mike Wilson are others.
He did an hour with the Josh Brown Podcast on Friday, and these are the key takeaways.
He has a core thesis that he does not deviate from as it’s always been a mistake when he has previously.
Markets move with the direction of earnings
This is the only long-term driver. If earnings are increasing markets go up.
Four points to watch that affect earnings:
- Economic activity drives earnings. If it falls earnings fall and vice versa.
- The availability and cost of money will affect economic activity. If lending dries up this will be bad.
- Central Bank policy is therefore important to watch.
- They are governed by unemployment and inflation.
So where is the economy now?
- EPS is positive. This peaks when margin contraction is greater than growth. It’s not happening.
- He believes core inflation drops back to below 3%
- The same happened in 2010/11 after the financial crisis. He sees the same basic situation playing out then as now.
- He does not believe it is useful to pay attention the geopolitical concerns. History of market reactions show them to be insignificant over anything other than short term.
- He thinks the markets are in a period of readjustment to a more historically normal set of economic conditions.
- He thinks interest rates peak out at less than 3%. They keep peaking at consecutively lower highs. The economy can’t take high rates so it’s a limited upside.
- He sees the biggest risk to 2022 being Central Banks tightening too aggressively. He thinks this would risk a mistake but would soon be apparent and reversed.
- He sees a moderate gain for the markets in 2022 as a consolidating year.
- He sees medium term optimism as justified.
- He likes how his charts are looking, they are not pointing to any major concerns. The chart below illustrates that goods demand is falling which indicates less pricing power due to shortages so reduced inflation pressure.
Note: This is written in a personal capacity and reflects the view of the author. The post has been checked and approved to ensure that it is both accurate and not misleading. However, this is a blog, and the reader should accept that by its very nature many of the points are subjective and opinions of the author. Individuals wishing to buy any product or service as a result of this blog must seek advice or carry out their own research before making any decision, the author will not be held liable for decisions made as a result of this blog (particularly where no advice has been sought). Investors should also note that past performance is not a guide to future performance and investments can fall as well as rise.