It's going to end badly, but you have to buy: Strategist

"The only thing that's left is buying the S&P." -Dwyer on finding value in today's economy

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.

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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.

'It's not different this time'

Adam Jeffery | CNBC

Even in light of those factors, Dwyer still remains positive.

"The combination of historic monetary accommodation, better economic readings, a positive inflection in [earnings per share] beginning in the second quarter, and the historic turn in market breadth and credit warrant a more aggressive position," the strategist said.

For additional context, Dwyer referenced historical trends in the market dating back to the 1970's, when inflation was at 14 percent and the S&P 500 operating earnings price/earnings ratio (P/E) was at 8.

"Unless you're in recession, you don't peak a bull market until when you combine the operating earnings P/E and inflation," said Dwyer. In other words, he believes history will repeat itself, similar to when the S&P rallied nearly 70 percent and P/E hit 22 from 1974 to 1976.

Dwyer compared the current standing of the U.S. economy to where it was from 1992 to 1994, when the Fed funds rate went from over 9 percent to 3 percent.

"It's not different this time. It's just taking a lot longer," he said. "The catalyst for change isn't time. It's the Fed."

Mark Wilson | Getty Images News | Getty Images

Despite his relatively constructive outlook, Dwyer saw a big risk to the scenario: The market will be neutered if the Federal Reserve doesn't act on interest rates soon. Recently, remarks from central bank hinted that a rate hike could be in play as early as June.

Ultimately, Dwyer believes that the Fed needs to raise rates enough to invert the yield curve in order to significantly affect economic activity and credit. Dwyer is adamant that the U.S. can't effectively reduce its debt with even more debt.

"This is going to end so badly, but we're on the right side of it," Dwyer said, referring to where investors can find value at the moment. "The only thing that's left is buying the S&P."