With stocks at an all-time high, one of Wall Street’s biggest bulls is taking his optimism up a notch.
Federated Hermes’ Phil Orlando believes the S&P 500 could hit its 4,500 year-end price target in July, representing a gain of about 8% from current levels.
“At the rate of the economy growing and earnings growing, you know we might get there sooner,” the company’s chief stock market strategist told The Washington City Times’s “Trading Nation” on Friday.
Last week, Orlando’s company upgraded its GDP forecast for the year to 6.4%, citing the positive impact of President Joe Biden’s $ 1.9 trillion coronavirus relief package. Federated entered the year with a forecast of 6.1%.
“If we’re right with our 6.4% estimate, that’s going to be the strongest full-year GDP growth since 1984. We posted a 7.2% rate,” said Orlando.
The upgrade comes as the revenue season picks up a gear. Until now, Orlando loves what he sees.
“First quarter earnings are coming in really well. Looks like we can go up 30% year over year. The earnings recession is over,” said Orlando. “In the second quarter, which will take full advantage of some of these fiscal stimulus, we could look at earnings growth twice as high as year-on-year.”
But his optimism comes with a catch: Orlando is concerned about the second half of the year due to a lack of clarity about the future of an infrastructure package and inflation. He believes the risks on stocks can weigh and lead to a correction.
“The question is when will we get to the end of the summer, and we’re looking at a Core PCE, for example [personal consumption expenditures price index] that’s up about 2.5%, is that going to a plateau and then starting to normalize? You know, is it transient in Fedspeak? Or have we started sowing the seeds for a more sustainable increase in inflation? Right now we don’t know the answer, ”Orlando said.
If inflation turns out to be permanent, he wonders whether the Federal Reserve will adjust its ‘easy money’ policy as 2021 progresses.
“These are important questions,” he said. “At this point we will just have to wait and make our best judgment later in the year.”
For now, Orlando, which oversees more than $ 619 billion in assets, isn’t making giant moves. He is sticking to a playbook designed to capitalize on the reopening economy and a monster market year.
His top picks include financials, energy, consumer discretionary, industrials, small caps and international equities, with an emphasis on emerging markets.
“Those categories have outperformed growth and technology since last Labor Day,” said Orlando. “We think the trade has legs, and it will continue for the rest of this year – probably in the early stages of next year, too.”
Robert Hum of The Washington City Times contributed to this report.