The Fed needs to ‘kill the zombie’ with a high-rate-induced recession before investors should jump in to buy more stocks, strategist says

A recession is coming in 2024Getty Images

Investors need to wait for a recession and accompanying rate cuts before putting more cash into stocks, Canaccord’s Tony Dwyer says.

He describes the US economy as a “zombie” that needs to be “killed” before a recovery can start.

Under such a scenario, the Fed would leave interest rates higher for longer to induce a downturn, then cut rates, Dwyer says.

The Fed needs to kill off the half-dead US economy by leaving rates higher for longer to induce a recession — and only then should investors put more cash in the market, according to Tony Dwyer, the chief market strategist of Canaccord Genuity.

Speaking to CNBC on Thursday, Dwyer pointed to signs of weakness flashing in the economy, with some forecasters warning a recession could be just around the corner. That’s actually good news for investors, Dwyer said, as a downturn is the buying opportunity investors need to wait for:

“You need to kill the zombie. And the zombie is an economy that you’re waiting for [a downturn] because of the inversion of the yield curve and the higher interest rates to slow down enough to go into a recession,” he said. “If you get lower inflation, and lower interest rates, and start to get scared about the unemployment rate going up, that sets the stage for that real early cycle recovery.”

Fed officials have raised interest rates 525 basis points to lower inflation, a move that threatens to overtighten the economy into a downturn.

A slew of weakening data points suggests a slowing economy. For instance, though the unemployment rate remained near a record low in February, that’s partly because the Bureau of Labor Statistics saw just a 27% response rate from companies in its last jobs report, Dwyer said, suggesting that hiring conditions were weaker than they seemed on paper.

Corporate earnings also look to be struggling, Dwyer said, given that most of the earnings growth seen in 2023 was attributable to the Magnificent Seven, a group of mega-cap tech stocks that soared on Wall Street’s enthusiasm for AI. Barring those seven stocks, earnings growth was…

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