However, relief may be in sight. Chiavarone suggested next week’s Federal Reserve’s policy meeting could help calm the Street and act as a catalyst for a year-end rally — particularly if Chairman Jerome Powell confirms he’s moderating his stance on tightening interest rates.
“We need to get a little bit of clarity on that. If it turns out that it’s just the December hike, and then we’re in pause… I think that’ll provide some comfort to the market,” said Chiavarone.
Plus, he said any solid news on resolving the U.S.-China trade war could also help propel stocks higher. “You’re going to have volatility in the market until we have more clarity on trade,” he added.
Chiavarone’s firm has a 2019 S&P 500 year-end price target of 3100, a number that was originally expected this year. Federated downgraded this year’s target to 2800, following the deep sell-offs gripping the market since October.
“We’ve broken below some key technical supports,” the fund manager said, saying the firm’s holdings were heavily tilted toward stocks. “We were 11 percent overweight equities in the summer. We’re closer to 3 or 4 percent overweight equities now in recognition of that.”
But he viewed the downturn as a temporary situation.
“Our best analysis —as we look at markets and as we look at the economy — is that things are stable,” Chiavarone said. “We’re confident where markets are going to go over the next 12 months.”