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- The "zombie economy" is haunting the stock market and stoking uncertainty, Canaccord Genuity's chief market strategist told Bloomberg.
- High interest rates have boosted borrowing costs, creating "zombie" companies lurking around the economy.
- But the US has still seen strong economic growth, clouding the outlook on a recession and generating market volatility.
The stock market has been jittery lately. Blame zombies.
Or rather, zombie companies, which are debt-saddled firms with unsustainable business models. One strategist says they've created a "zombie economy" that's contributed to volatility as interest rates have risen.
"We kind of still have the zombie economy," Tony Dwyer, the chief market strategist at Canaccord Genuity, told Bloomberg on Wednesday. "It's been the fastest rate-hike cycle in history into a generationally levered system. That's not great."
Those higher costs of debt have recently exposed cracks in the commercial real estate sector. New York Bancorp's stock has tumbled 31% in the last 5 days, tanking after an earnings report citing property loan woes. It's given investors flashbacks of the bank failures in 2023.
At the same time, Dwyer explained, the economic outlook is uncertain. Although borrowing costs haven't been this high in over a decade, the US economy seems to be doing just fine, posting strong GDP growth and red-hot jobs data.
It's that uncertainty that is bleeding into the stock market.
"The problem that we have in the market, in this zombie-like economic environment, is that you're chasing a tail," he said.
The commercial real estate crash won't knock the economy down, said Dwyer, who sees a simple solution.
"What kills the zombie is you kill what created it: the fastest rate-hike cycle in history," he said.
Dwyer added: "Have some kind of medicine for the economy and for commercial real estate, for the government, for everything, for the election. You need lower rates."
While the Fed is postured to pivot, Jerome Powell has said a March rate cut is unlikely. Now, traders are placing a 55% chance the committee cuts rates by 25 basis points at its May meeting, according to the CME FedWatch Tool.