Wall Street bull Tony Dwyer strengthens outlook, but warns 'excessively high' optimism spells near-term trouble

Canaccord Genuity's Tony Dwyer is on correction watch due to frothiness in the market.

But he isn't rolling back his overall bull case for stocks. Rather, he's strengthening it by boosting his EPS or earnings per share targets for this year and next.

"There are three levels of stimulus that have come into the marketplace," the firm's chief market strategist told CNBC's "Trading Nation" on Thursday. "We're in a pandemic marketplace. Of course, you've got the monetary stimulus. We've got an infinity Fed. We've got the fiscal stimulus, [the] $2.2 trillion Cares Act which will likely have more to come in the coming week if Congress can get their act together."

For this year, Dwyer's EPS expectation is $138 a share from $125. In 2021, Dwyer now calls for $176 a share versus $165. Refinitiv reports the Street consensus is at $168.

"With the combination of excess liquidity and a synchronized global recovery, I think it's set up for a pretty good year," he said. "What people haven't really priced in is the interest expense savings stimulus … Corporate America is going to likely save 20% in their interest expense savings because of the extraordinary demand for corporate bonds and drop in interest rates."

Meanwhile, Dwyer maintains stocks are in a near-term "chill zone" and ripe for a sharp pullback.

"There is no question that optimism is excessively high," he said. "The market has already been reflecting that by the average stock not going up like the rest of the indices. All we hear about is the new record high."

He notes the timing of his EPS upgrade was intentional to give investors confidence to buy a correction before it unfolds.

"You want to attack the weakness instead of fear it," he said.

Correction will come 'out of nowhere'

Right now, the major averages are on pace for weekly losses. However, the S&P 500, Dow and tech-heavy Nasdaq are still less than 2% from their all-time highs.

The big question: What could spark the correction? According to Dwyer, there's no clear answer.

"When things get this bullish and this optimistic … it comes out of nowhere," Dwyer said. "It's something that kind of hits you."

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