Equities to Move Higher, Despite Fed Taper Talk: Pros

The Federal Reserve's talk of tapering asset purchases won't kill the rally in equities, two top market economists told CNBC on Thursday. They said stock prices are likely to rise into 2014.

"Risk assets will eventually collect themselves and will be doing better," said Ward McCarthy, Jefferies & Company chief U.S. financial economist. He cited four reasons for a bullish stance on equities: continued job growth, an improving housing sector, high growth potential in energy and manufacturing that is "poised for recovery."

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"I think that the timing of Bernanke's comments yesterday really fits pretty well with where the economy is going," McCarthy said on CNBC's "Squawk on the Street."

The Fed concluded a two-day meeting on Wednesday with a statement that the central bank would continue its $85-billion-a-month asset purchases for a while longer, but Chairman Ben Bernanke hinted that the policy could be scaled back later this year if positive economic trends continue.

Bernanke said interest rate hikes are a separate issue and "still far in the future."

Joseph LaVorgna, chief U.S. economist at Deutsche Bank, makes a bullish case for equities, even in this environment. With "stupidly low levels" on yields on Treasury notes, he said, "equity prices will go higher, risk assets will go higher."

LaVorgna said that even with a recent rise in yields, the number is still not enough to slow a recovery in housing. Yields would have to rise above 4 percent to have a meaningful impact on housing, he said.

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"It becomes dangerous when the Fed is closer to getting to neutral," which Lavorgna estimates could be between 3.5 to 4 percent. "It's at that point—if yields have gone up substantially higher— the housing market could slow, interest-sensitive activity could slow, but we're so far from that."

"Housing is going to offset a lot of this tightness in financial markets," he said.

McCarthy added that an anticipated increase in rates will boost housing in the near term, since potential home buyers, who are undecided about purchasing a home, will be more likely to pull the trigger to lock in low rates.

Despite tapering, "the Fed is continuing to buy," McCarthy said, estimating that if the central bank continues this level of purchases through the end of the year, this will account for over $660 billion in assets and push the balance sheet to $4 trillion. "It's not like the Fed is abandoning ship. It's just preparing to come into dock," he said.

LaVorgna said Wednesday's selloff after the Fed announcement was an "massive unwind of global leveraged carry trades," so the impact of a more hawkish stance from the Fed should have a mild impact on the real economy.

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"It's not like a lot of this money went into stocks to begin with," he said. "All the money went into fixed income—in particular junk and emerging markets. That's where you're seeing the dislocations."

"The general economy is pretty darn healthy," he added.

— By CNBC's Paul Toscano. Follow him on Twitter and get the latest stories from "Squawk on the Street" @ToscanoPaul