Canaccord Genuity Chief Markets Strategist Tony Dwyer joins Yahoo Finance Live to debunk stock worries for the Nasdaq after the Fed chair announcement was made yesterday.

Video Transcript

BRIAN SOZZI: Stay on some of the moves we are seeing in the markets post-Fed chair news. Tony Dwyer is the Chief Market Strategist at Canaccord Genuity and joins us now. Tony, good to see you here. We've been focused on the move in tech, really, all morning long here. Debunk this for us. Why are people wrong to be dumping tech stocks here after the Fed announcement?

TONY DWYER: Well, hey, guys. And happy Thanksgiving to you and all the viewers. The focus on the weakness in tech-- everybody's kind of got it as, like, it happened yesterday afternoon. It just went up buy my reading in the NASDAQ comp today as of last night's close. Only 22% of the NASDAQ was above their 10-day moving average.

In other words, that weakness has been happening over the last couple of weeks, and it just happen to hit those mega cap stocks that really drive the index performance. Use yesterday as the idea that we're going to go into a consolidation period for the NASDAQ is missing the point that it's been in a consolidation period really since early November.

JULIE HYMAN: And so what's going on there then, Tony? Was it anticipation already being priced in that we were going to get at higher rates sooner than had been expected by the market? Or is there something else going on here?

TONY DWYER: I think, Julie, sometimes, in doing what we do, you and then me coming on, we try to make reasons for something. Sometimes, things just went up too much. There's too much strength and then the market tries to find an excuse for what it is. The idea that it was down big and, I mean, you had a sloppy auction. So the treasuries were sloppy as day rates went up. And that provided an ample excuse to hit some of those higher valuation names.

But again, there's been a pretty dramatic decline in a lot of names underneath the surface over the last couple of weeks. So if anything, to me, I think we're probably getting closer to an oversold bounce than beginning some kind of catastrophic decline.

BRIAN SOZZI: Tony, do you think the appointments or the reappointment of Jerome Powell-- is that bullish for the markets next year?

TONY DWYER: Truly, Brian, I don't think it matters. I think we have this idea that the Fed chairperson is going to dominate and dictate the direction of Fed policy. Fed policy is a consensus mechanism that's driven by inflation and unemployment. So the worst inflation is this year, the less likely it's to be, again, another leg higher next year.

Remember, we've had extraordinary demand this year because of the money that has been the fiscal and monetary stimulus. That's ebbing next year. You've got the supply chain constraint coming from COVID, which hopefully is going to be ebbing next year. So you're in the supply and demand dynamic that has created this spike in inflation. Ask any semiconductor company. There's over ordering in the capital markets.

In other words, if you need X amount of semiconductors or Deere truck, whatever the product is, because of the supply chain constraints, as a company, you probably over ordered. If you lose that demand next year and you're trending lower from historically high inflation, the Fed chairperson really isn't going to matter.

You're going to have a decline from peak and a trending lower inflation environment and a slower economy. It doesn't matter. If they had some kind of crazy disagreement, Lael Brainard or Jerome Powell, they agreed every time. So I don't really-- I think, again, the last two weeks or last week into this week, the whole debate about what it meant for the market, I think, was just missing what really drives the Fed.

JULIE HYMAN: OK, so let's step away from the Fed for a second, because the picture you just painted of what it could be like, say for semiconductor maker as one example next year. That's a rougher road, right? So is that what you're expecting? Was that sort of a hypothetical? Do you think that we are going to see semiconductor makers and other sort of, you know, we can extrapolate out and say, are things going to be tough for appliance makers or for electronics makers? Do you think generally we're going to see consumer spending start to wane a little bit?

TONY DWYER: Well, I think consumer spending will be good because employment is good. The question is, how much aggregate demand is in excess because it was trying to combat the supply chain constraints? And I don't want to just use semiconductors. That was just an example. So, you know, please, don't make it like I'm making this massive call on semiconductors. I'm not.

It's a macroeconomic statement that there was over ordering to combat the effects of the supply chain constraints. When you have that-- It's any cycle of a commodity or any cycle of an economically sensitive instrument. When you can't get it, you over order it to get the amount that you need.

That means that once you have a supply chain that can get you the amount you need, well, you order less because you just ordered more than you needed. So it's not that the economy is going to be negative next year or it's going to be some kind of, you know, very weak environment, but you could see some kind of demand pull back from peak.

And at the same time, everybody's thinking that the Fed is going to have to hike rates in the middle of next summer. Julie, we've done this a long time. We were kind of goofing around about that off-air. How many times do we have statements coming from people like me that the Fed is going to do something and then data changes, and we're like, "OK, the data changed."

The guy has not lied yet. The Fed chairpeople, from Bernanke to Yellen to Powell, since we've had open communication and press conferences, they've not lied yet and they've absolutely given you a runway what their opinion is.

Jerome Powell, who's going to be the new Fed Chair again, it looks like, pending the approval process, has literally said there's going to be a long lag in between when we stop tapering middle of next year and when we begin lifting rates off the low. I believe him because he hasn't lied to me yet.

JULIE HYMAN: Unless he changes his mind, I guess, depending on the data. In which case, he'll tell us and telegraph it. One would think, right? OK, so put it all together, Tony. As we head into 2022, what are stocks going to do? If indeed the Fed is being honest with us, if indeed the trajectory remains the same, what are stocks going to do?

TONY DWYER: Into year-end, it would be historically unique since 1950 for the S&P 500 to be up more than 18% through the end of October, which it was. That was up 22%. It would be historically unique for the market to be down from that October close, according to the S&P 500.

So we expect a little bit of a continued strength. The median gain is 6% over November and December. Again, in those instances since 1950. I think there's 13 of them. So, I think we're going to be OK into year-end, and then I think it's going to get volatile, because we're going to be, again, having this debate about what the Fed policy is going to be.

Aggregate demand will still be good, but it may not be at that level that has everybody worried about inflation. So I think we're going to have a volatile year next year. That classic strategist statement. It should be up about roughly in line with what earnings are. I'm not sure that you're going to get a massive valuation expansion. So, again, and we would be focused into year-end and buying some of those economically sensitive names that have acted so well yesterday and into early going today.

BRIAN SOZZI: Tony, don't laugh at me on this one. I'm getting these questions so I'm going to put it to you. I know you're are you are the pro's pro here. Are we witnessing a stock market bubble right now?

TONY DWYER: Are we witnessing a stock market bubble? I think that's a great academic discussion, and I'm not an academic. I think my job is to help educate your viewers and hopefully guide them to make good investment decisions in whatever investment process they pursue.

Whether we're in a bubble or not, we've been in a bubble since I've been in this business in 1987, right? How many bubbles are there? Here's the problem with the bubble. The bubble always comes from when there's too much debt in the economy, which is the no-brainer. Of course, there's too much debt in the economy.

Since I've been in in this business, I've heard from the academics that too much debt means that at some point, you're going to have to have higher interest rates to attract buyers of that excess debt. The only problem with that is, over the last 30 years, 35 years, the more debt that's been created, the higher the equity and bond markets go.

In other words, by bond markets, I mean price, not yield. So if the excess amount of debt was going to create an environment where you needed higher interest rates, the practical evidence is absolutely the opposite. So the point is, Bryan, it's sort of, like, what I explained to my clients is, think about when you're blowing a bubble, a bubble gum, right? Don't you always have to blow more breaths into it before it actually pops? Or if you're filling up a water balloon in a hose, doesn't it always get bigger than you think it's going to be before it pops?

People keep trying to figure out the pot point. And that's not-- I think that's all. There's more underperformance of active portfolio managers because they think the market's going to explode than just following the trends that are currently in place.

BRIAN SOZZI: Well, that's why I put this question to you. I knew you would break it down in a way that people would actually understand. Tony Dwyer, Chief Market Strategist at Canaccord Genuity, always good to see you. Have a happy Thanksgiving.