U.S. equity could remain choppy over the summer, but Federated Investors chief equity strategist Phil Orlando anticipates strong double-digit gains in the fourth quarter, taking the S&P 500 to the 3,100 area. Moreover, he told attendees at Pershing's annual INSITE conference Wednesday that the index could climb in 2019 to 3,400.
That doesn't mean there aren't serious concerns. But most of them are normal.
"Will the new Fed chair be as good as the last Fed chair?" he asked. Whenever there is a new Fed chair—there have been 16 in all—the market tends to fall and then recover to new highs.
The markets are concerned about "inflation spiking," but it isn't, Orlando said. It's "gradually grinding higher," which is the way it is supposed to act at this stage of the economic cycle.
Trade and tariffs currently top the list of market worries. Orlando maintained that President Trump's tough talk represented more an opening salvo to negotiations than a threat to global economic stability.
Why? He doesn't believe that Trump's chief economic advisor, Larry Kudlow, would have accepted the job if he thought the president were serious about a trade war.
Kudlow didn't "want or need the job," Orlando noted. "He is a free-trade, King Dollar guy," so it is inconceivable he would have taken the job if Trump really wanted to weaken the dollar and "blow up" the global economy, he said.
Orlando also believes Trump may be onto something with his obsession over the U.S. trade deficit. It is having an "increasingly deleterious affect" on GDP growth, he noted.
In last year's fourth quarter, the trade deficit took 1.2 percent out of U.S. GDP growth. "If the trade deficit was neutral in the fourth quarter, GDP would have been up 4.1 percent, not 2.9 percent," Orlando said.
Then there are the mid-term elections, the possibility of a "blue wave" and the presidential election cycle. Typically, the second year of a president's term in office is the weakest year of the four-year cycle, according to data going back to 1945.