Longtime stock-market bull Phil Orlando, chief market strategist at Federated Hermes, sees a good chance for a 10% correction in the next five weeks and says technology stocks could tank 20%.
The uncertainty in fiscal and monetary policies could be a trigger, he told CNBC.
“On the monetary policy side, inflation has been running much hotter than the Fed and the administration have been prophesying,” Orlando said.
“We think inflation is more sustainably higher. That’s going to result in the Federal Reserve changing monetary policy both in terms of their taper and their interest rate increases much more quickly than they originally told us.”
The personal consumption expenditures price index, the Fed’s favored inflation indicator, rose 4.2% year-on-year in July.
Fed officials have indicated the central bank is likely to begin tapering bond purchases in November.
Conflicts in Congress over the debt ceiling and spending also are a problem, Orlando said.
“This is a very critical week,” he said. “All of those discussions are very much in flux, so any combination of these developments in Washington could be ripe for another leg down in stocks.”
So, “If we’re right that there’s a 5 to 10% air pocket coming due to some of these events, the technology stocks we think could get hit disproportionately,” Orlando said.
“Maybe that would be a 10% to 20% move to the downside.”
To be sure, Orlando still expects the S&P 500 to reach 4,800 by year-end, up 10% from 4,365 Tuesday.
He sees 5,300 by year-end 2022.