A long-standing bull market tempers its outlook due to inflation.
Phil Orlando of Federated Hermes expects the Federal Reserve to hike interest rates six times over the next two years to contain massive price increases from vehicles to shelters to food.
“Our best guess is that we’ll see two-quarter-point rate hikes from the Fed in the second half of next year, and possibly more four-quarter point rate hikes during the next year. calendar year 23, “the company’s chief equity strategist told CNBC. “Trading Nation” Wednesday.
Orlando, which has $ 634 billion in assets under management, is worried about the latest inflation figures. Personal consumption expenditure and the CPI are accelerating at a rapid rate in three decades.
The Commerce Department announced last week that prices for personal consumption expenditure or Core PCEs were up 4.1% in October from a year ago. The inflation gauge, on which the Fed relies most, does not include food and energy.
The consumer price index or CPI also rose rapidly in October. The Ministry of Labor index, which tracks what consumers pay for goods, includes food and energy.
“Considering the surge in inflation that we’ve been seeing lately, it wouldn’t surprise me if the Fed accelerated this rate of reduction,” he said. “Once the spending cuts are over, we would expect to see rate increases. “
This is what might surprise Wall Street, according to Orlando.
“The Fed has, I think, to an extent, talked about a good match with the Biden administration in terms of temporary or transient inflation,” he said.
Still, Orlando thinks the Fed understands the magnitude of the problem. He cites the decision to start cutting this month.
“They’re going to phase out housing at a reasonable rate over the next couple of years or so in an attempt to bring inflation under control and see if they can put this genius back in the bottle,” he said.
In a rising rate environment, Orlando particularly likes stocks in the energy, materials and industrials sectors due to their ability to recoup rising business costs, raise prices and increase margins. .
“What we’re doing is trying to invest in companies that are navigating this situation in pretty good shape,” Orlando said.