Hindsight is 20/20, but one stock market watcher is willing to predict that stocks are not overbought. Canaccord Genuity Chief Market Strategist Tony Dwyer suggests that economic expectations are set too low, which gives the impression that conditions are worse than they are.

For instance, if you look at signals such as the pace of manufacturing growth around the world, most recently in Germany, things look pretty dismal. So bad, in fact, that another recession could be on the horizon.

Not so fast, says Dwyer.

In this environment, monetary policy is ripe for easing, not tightening, which is the recipe that stocks need for a sustained rally. Despite the uncertainty, Dwyer says investors shouldn’t worry that the market has “gotten ahead of itself.” Instead, be opportunistic and use the economic backdrop to buy stocks.

He comments:

Use weakness as your advantage until you have identification through the credit markets of an imminent recession…There’s no sign that we’re on the precipice of this huge economic downturn. Our view is you want to be buying weakness as it comes, and it’s going to come.”

"There's no sign that we're on this precipice of this huge economic downturn." @DwyerStrategy says to "use weakness as your advantage until you have identification through the credit markets of imminent recession." 👥 @NPetallides @CanaccorGenuity

📍 @Nasdaq MarketSite pic.twitter.com/bgWazrXeRX — TD Ameritrade Network (@TDANetwork) March 25, 2019

Bull or Bear Market?

Until last week, stocks have been on a tear in the first quarter of 2019, and the line between a bull and bear market has been blurred. Future price weakness is expected as a function of the current valuation backdrop. As a result, when earnings season gets under way next month, investors are prepared for corporate America to report its first “negative quarter” since 2016.

Much of that has already been baked into stock market prices. What’s not being reflected are improvements in the global economy and stability in the U.S. economy that are anticipated for the second half of this year. That will make all the difference. He states:

Guidance is what everybody’s going to be looking for.

History Is the Best Teacher

As a market strategist, it’s Dwyer’s job to identify historic parallels in the economy. He reflects back on year-end 2017 and early 2018, when market conditions and expectations were juxtaposed with today’s scenario. Expectations for growth were high, fueling optimism that paved the way for the global economy to surpass those expectations. Dwyer says in hindsight, things were too good to be true, and that was the time to be selling stocks.

Fast forward to today’s economy, and “maybe things are a little bit too bad now,” he said, pointing to the manufacturing data, in which case it’s the perfect time to buy. A key difference between then and now was that the Fed was aggressive in 2018 in an attempt to cool down an overheated economy, which Dwyer says is “not the case today.”

He harkens back to 1995 when after raising rates early in the year, the Fed proceeded to cut rates that summer to avoid inverting the curve and encourage bank lending. Back then, the stock market was already up 15 percent before Fed officials cut rates. Once they did so, stocks rallied an additional 20 percent. Similar conditions exist in today’s economy, with the trend recently switching from raising rates to expectations for a rate cut.

Dwyer says it’s important to examine history. As long as there’s not a recession, which according to Dwyer is not in the cards, the economy appears to be on a similar trajectory. Today, the broader stock market indices are all posting gains of more than one percent.