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Market Bull Predicts Stocks Could Surge Another 8% by July, But Lacks Clarity on Rest of Year

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With stocks at all-time highs, one of Wall Street's biggest bulls is taking his optimism up a notch.

Federated Hermes' Phil Orlando believes the S&P 500 could hit his year-end price target of 4,500 by July, which implies about an 8% gain from current levels.

"At the pace the economy is growing and earnings are growing, you know we might get there earlier," the firm's chief equity market strategist told CNBC's "Trading Nation" on Friday.

Last week, Orlando's firm upgraded its GDP forecast to 6.4% for the year, citing the positive impact stemming from President Joe Biden's $1.9 trillion coronavirus aid package. Federated came into the year with a 6.1% forecast.

"If we're right with our 6.4% estimate, that's going to be the strongest full-year GDP growth since 1984. We posted a 7.2% rate," said Orlando.

The upgrade comes as earnings season kicks into high gear. So far, Orlando likes what he sees.

"First quarter earnings are coming in very strong. Looks like we could be up 30% year over year. The earnings recession is over," said Orlando. "In the second quarter, which will enjoy the full benefit of some of this fiscal stimulus, we could be looking at an earnings growth rate twice that on a year over year basis."

But his optimism comes with a catch: Orlando is concerned about the year's second half due to a lack of clarity surrounding the future of an infrastructure package and inflation. He believes the risks could weigh on stocks and spark a correction.

"The question is when we get to the end of the summer, and we're looking at say a Core PCE [personal consumption expenditures price index] that's up around 2.5%, is that going to plateau and then begin to normalize? You know, is it transitory in Fedspeak? Or, have we started to sow the seeds of a more sustainable increase in inflation? We don't know the answer to that right now," said Orlando.

If inflation proves to be lasting, he wonders if the Federal Reserve will adjust its easy money policy as 2021 progresses.

"These are important questions," he said. "Right now we're just going to have to watch and wait and make our best judgment later in the year."

For now, Orlando, who oversees more than $619 billion in assets, isn't making any giant moves. He's sticking with a playbook designed to profit from the reopening economy and a monster market year.

His top picks include financials, energy, consumer discretionary, industrials, small caps and international stocks, with an emphasis on emerging markets.

"Those categories have outperformed growth and technology since last Labor Day," Orlando said. "We think that trade has legs, and it will continue through the balance of this year — probably into the early stages of next year, as well."

CNBC's Robert Hum contributed to this report.

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