According to Phil Orlando, Chief Equity Strategist at Federated Hermes, the stock market is poised for the next phase of the bull market, with the S&P 500 potentially hitting a record-high of 5,000 by the end of 2024. Orlando believes that the Federal Reserve’s decision to halt interest rate hikes will contribute to the continuation of the bull market into 2024.
In an interview with Bloomberg Surveillance, Orlando expressed optimism about the upward trajectory of stocks, citing the recent climb from 4,100 to 4,500 as evidence of a trend with significant momentum. He anticipates a sustained upward movement in stock prices, fueled by the belief that the Fed has completed its cycle of interest rate hikes.
The Federal Reserve raised rates by 525 basis points over the past 20 months to curb inflation, a move that negatively impacted stocks in 2022. However, Orlando points to the substantial cooling of inflation from its peak last summer as a factor supporting the case for the Fed to pause further rate hikes. In October, the year-on-year increase in prices was 3.2%, lower than the expected 3.3%, according to the Consumer Price Index report.
Orlando also notes the recent surge in bond yields, with the 10-year US Treasury yield briefly exceeding 5% last month. Higher bond yields influence other interest rates in the economy, contributing to a tightening of financial conditions. Orlando suggests that the bond market has alleviated pressure on the Fed, allowing them to take a more cautious approach to interest rates in the coming year.
“The bond market’s done the heavy lifting for [the Fed] since the last Fed rate hike in July,” Orlando stated on Bloomberg. “That gives the Fed the luxury, in my view, to step back and say, you know what, we don’t have to hike anymore. We can just sit here on the sidelines for the next year and allow the gradual slowing of inflation to occur.”
Market expectations align with this perspective, with an 81% chance, according to the CME FedWatch tool, that the Fed might cut rates in the first half of next year. Orlando anticipates that the positive outlook for rates will continue to drive the ongoing rally in equities. The S&P 500 has already seen a 7% climb over the past month, reaching around 4,535 on Monday.
Looking ahead, Orlando suggests that the market rally could extend into 2025 and 2026, especially if the upcoming election cycle brings about business and fiscal policies that are perceived as market-friendly. The overall sentiment is one of optimism, with Orlando anticipating a bullish trajectory for stocks in the foreseeable future.
