- According to market expert Phil Orlando, the S&P 500 may be on track to set a new record next year.
- Federated Hermes’ chief equity strategist said the Fed is likely done with interest rate increases.
- This means that the second part of the boom may last until 2024, he predicted.
The bull market stocks have more room to run and could drive the S&P 500 to a new high by the end of next year, says one market veteran.
This is the thesis of Phil Orlando, chief equity strategist at Federated Hermes. Orlando expects the S&P 500 to rise to 5,000 by the end of 2024, an increase of about 10% from the benchmark index’s current level.
“We believe that the company’s shares will grow. Their level increased from 4,100 to 4,500. We believe this is a trend that has legs,” Orlando said in an interview for Bloomberg Surveillance on Monday.
His optimism stems largely from his belief that the Fed is tired of raising interest rates. Central bankers have already raised interest rates by 525 basis points over the past 20 months to bring down inflation, which will lead to a sharp decline in stock prices in 2022.
However, inflation has fallen dramatically from its peak last summer. Prices rose just 3.2% year-on-year in October, less than the expected 3.3% increase, the Consumer Price Index report showed last week.
The case for the Fed ending interest rate increases is also supported by the recent rise in bond yields, with the 10-year U.S. Treasury yield briefly topping 5% last month. Higher bond yields influence other interest rates in the economy, which has also helped tighten financial conditions.
“The bond market has already done the hard work [the Fed] since the Fed last raised interest rates in July,” Orlando told Bloomberg. “It gives the Fed the luxury, in my opinion, to step back and say, you know what, we don’t need to increase anymore. We can just sit on the sidelines for the next year and let inflation gradually slow
According to CME’s FedWatch tool, markets are currently pricing in an 81% chance that the Fed will cut interest rates in the first half of next year.
Stocks rallied in November as investors assessed a more positive outlook for interest rates. The S&P 500 index rose 7% over the past month, hitting around 4,535 on Monday. Orlando said the rally could continue into 2025 and 2026, especially if the upcoming election cycle encourages more market-friendly business and fiscal policies.