Market bull lists inflation as the best threat and warns of a “wake-up name”

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

According to Federated Hermes’ chief market strategist, inflation could be more difficult than the Federal Reserve expects. He warns that this could scare Wall Street and put investors in 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 the summer, paving the way for an earlier slowdown than expected. Orlando said he thought it was 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 in relation to the valuation of 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.

Orlando, who predicted herd immunity to Covid-19 by July, still considers himself constructive about the stocks.

“We think 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 year-end forecast for the S&P 500 is 4,500, up 6% from Friday’s closing price.

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