Market bull lists inflation as top risk, warns ‘wake-up call’ is ahead

There is an overwhelming risk right now that affects longtime bull Phil Orlando.

Inflation could be stickier than the Federal Reserve expects, according to Federated Hermes’ chief market strategist. He warns against scaring Wall Street and throwing investors into the crosshairs of a turbulent summer.

“The level of inflation will continue to rise,” he told CNBC’s “Trading Nation” on Friday. “That will raise some questions. Will the Fed make a policy adjustment at an FOMC meeting or maybe in Jackson Hole?”

Orlando cited a sharp rise in labor costs over the past two months, raw material costs, and consumer willingness to spend more to be vigilant.

“We like to do this because we have a lot of money that burns a hole in our pockets,” said Orlando. “But these inflation rates are rising, perhaps at levels a little more aggressive than the Federal Reserve expected.”

Orlando said it could push the Federal Reserve and chairman Jerome Powell out of temporary inflation camp by the end of summer, paving the way for an earlier slowdown than expected. Orlando said he saw it as the biggest threat to the market.

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“That is the potential risk to the market that interest rates will rise due to inflation, and that will affect the discount rate when it comes to valuing stocks,” he said.

Orlando also sees tax uncertainty causing nervousness among investors this summer.

“All of these issues are going to somehow come together and … maybe act as a wake-up call for the market in this late July-early August timeframe,” he said.

However, Orlando, who predicted herd immunity to Covid-19 through July, is still believing himself to be constructive about stocks.

“We believe GDP growth will be very strong in the second quarter: 9.2% up about 60% or 70%,” he added. “So the numbers right in front of us are terrific.”

Orlando, whose company manages $ 625 billion in assets, is confident the S&P 500 will end the year on a good note. His S&P 500 year-end forecast is 4,500, up 6% from Friday’s closing price.

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