The chief equity market strategist of Federated Investors, Phil Orlando, reflected a range of headwinds buffeting the stock market. Some of the biggest Wall Street bulls have pulled in the reigns.
Phil Orlando has anticipated 2900 on S&P 500 by the end of this year. He had already anticipated half of the advance. Orlando has even revised his target from 3,500 to 3,300 on the S&P 500 for the next year.
In specific, he is currently focusing on one market risk. Orlando said that the Fed is at the top of their list at the moment. He added,
We’re fine with the quarter-point hike at the December FOMC meeting, we’re fine with another two-quarter-point hike, say, in the first half of next year, but, at a 3 percent funds rate, we think we should be done.
As per Orlando, the possibility of slowing down of economic growth in US and abroad will warrant a pause from the Federal Reserve in the second half of the next year and in early 2020 at 3% mark. Orlando said that there has been a continuous hike in dot plots of the Fed and will bring the funds rate up to 3.5% in the year 2020.
The dot plot release by the Fed in September will lead to fed funds rate of 3.1% for the next year resulting in three rate hikes in the next year. This is too much as per Orlando. He explained that the market will be at risk if the Fed over-tightens and the yield curve is inverted. They are responsible for creating a recessionary environment in 2021 that both the Fed and the market are avoiding.
In the December meeting, the Fed is going to publish a new dot plot forecast. CME Group fed funds future reported that markets will be pricing in 25 basis point. Several other issues including US-China trade uncertainty and strong US dollar may impact corporate earnings which may push the markets lower.
Source: CNBC, Federated Investors
