A Wall Street chief strategist just withdrew his S&P 500 price target, citing 'unprecedented' Fed actions that have rendered valuations 'useless'

• After last week's announcement that the Fed will alter its approach to controlling inflation, one market strategist is withdrawing his S&P 500 price target.
• Tony Dwyer of Canaccord Genuity said in a note published on Monday that the Fed is set to remain "historically accommodative" for a very long time, as it will no longer raise interest rates even if inflation begins to pick up.
• Because of this "unprecedented" Fed policy, Dwyer withdrew his S&P 500 price target of 3,300, citing that "there is no precedent to how high valuations can go," according to the note.
• Still, similar to the fall of 2009, Dwyer expects a few market sell-offs over the coming months as investors traverse temporary periods of weakness and volatility amid a new economic and market cycle.
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For one market strategist, the recent overhaul to the Fed's monetary policy framework is "unprecedented" and renders valuation targets "useless."

That's according to Tony Dwyer, the chief market strategist of Canaccord Genuity, who spelled out in a note on Monday why he is withdrawing his S&P 500 12-month price target.

Last week, the Fed said at its virtual Jackson Hole conference that it would let inflation run above its average long-run target of 2% before raising interest rates.

This will lead to "historically accommodative" monetary policy from the Fed, which means the current economic cycle "has a very long way to go," according to Dwyer.

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Dwyer thinks the Fed will maintain a zero interest rate policy and remain open-ended on quantitative easing policies for at least the next five years. This will likely result in the potential of an "unlimited level of debt," Dwyer said, pointing out that these Fed policies will be enabled by an expanding Fed balance sheet.

And that balance sheet expansion and dovish Fed policy mean "there is no precedent to how high [stock] valuations can go," Dwyer explained as the main reasoning for withdrawing his 3,300 S&P 500 price target.

"A zero-interest rate policy and unlimited QE have no precedent, rendering valuation targets useless," Dwyer added.

This, combined with the outsized influence of mega-cap stocks like Apple and Amazon, caused Dwyer to withdraw his target "because it would be a wild guess and could mislead investors of our view," according to the note.

While Dwyer remains positive on the fundamentals of this current economic and market cycle, he does believe the market will be susceptible to 3-7% sell-offs like it was in the fall of 2009. Subpar market breadth and increased investor optimism give Dwyer reason for short-term caution.

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And if the market does experience a sell-off as Dwyer expects, investors should use that opportunity to add exposure to certain sectors that will benefit from the reopening of the economy, including industrials, financials, materials, and consumer sectors, he concluded.