• Federated Investors’ Steve Chiavarone expects 5% to 8% sell-off
  • He believes markets will still end 2018 about 9% higher
  • Fed’s rate decision next month could play a major role

One of the investment market’s most prominent bulls has adopted a more cautious stance.

Federated Investors Portfolio Manager Steve Chiavarone expects Wall Street to drop by between 5% and 8% before the end of this summer, and he believes the mini sell-off might have already begun.

In an interview with CNBC’s Trading Nation on Friday, Chiavarone quoted uncertainty in the marketplace as the biggest single reason that they have “taken a few chips off the table.”

He said that there have always been pullbacks during midterm election years, especially during the summer months, adding: “Big trade rhetoric is going to continue to be hot.”

Chiavarone also expressed the view that next month’s Fed policy meeting on interest rates might play a major role in what happens in stock markets. He said that markets might be concerned about the fairly tight yield curve as the Fed prepares to announce another rate hike.

Even if there is a sell-off during the summer months, he does not intend to make any major changes to his price target of 3,100 for the S&P 500 at the end of 2018. This would represent an increase of nearly 9% between now and then, but he is certain the market will recover from any possible sell-off.

Chiavarone concluded by saying that they believed growth will stay strong, inflation will surprise everyone to the downside, and the Federal Reserve will announce fewer rate hikes next year than expected.

He said that this will “allow markets to melt up” and that he plans to redeploy his “chips” closer to the start of the fourth quarter.

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