One of Wall Street top strategists believes the best is yet to come for equity investors in the coming year—but the rally is unlikely to have a happy ending if the Federal Reserve doesn't act.
"Improvement in credit, energy and emerging currencies leads to higher prices over time," said Tony Dwyer, chief market strategist for Canaccord Genuity, on CNBC's "Fast Money" this week. "I think you have multiple expansion in front of us with some top-line growth with a better global economy."
Dwyer just initiated a new 2017 S&P 500 Index price target of 2,340, which represents a 14 percent increase from current levels. Ultimately, he's calling for a 15-20 percent rise in the S&P 500 in the next 6 to 12 months, with a belief that earnings will improve while global volatility will subside.
Surveying the landscape, two of the world's most troubled economies—Europe and China—are showing signs of stability, he said.
"The leading economic indicators are still positive in the euro zone, and leading economic indicators are sequentially improving in China," added Dwyer. "What if there are surprises to the upside and you get some economic vitality and you get some ramp in earnings? There's your multiple expansion."
Still, pockets of softness in the current earnings period keep the picture murky. For the first quarter, the blended revenue growth estimate is -1.8 percent with 96 percent of S&P 500 companies having reported as of Friday, and 52 percent of companies reported revenue above analyst expectations. According to Reuters, a typical quarter sees 60 percent of companies beating expectations.
However, Dwyer cited 74 straight months of payroll growth, weekly initial unemployment insurance claims being at a multi-decade low in addition to consumer confidence nearing a cyclical high, as reasons for optimism.
Meanwhile, the investor added that getting through June with limited volatility is key, as potential hurdles for investors include an OPEC producer meeting in Vienna, Austria early next month. Separately, a referendum on the 23rd regarding Britain's decision to leave the European Union is seen as a big wild card for the market.