Blackstones Byron Vienna on CNBC forecast on Friday that Wall Street will be hit by another correction before the bull run resumes and stocks are above current levels for the year.
Inflation will rise faster than most projections, which will cause the Federal Reserve to tighten monetary policy and likely lead to a sell-off of the market, the closely-followed strategist told CNBC on Friday.
“Maybe it will shrug, but I worry that now is the time to exercise caution,” Vienna, vice chairman of Blackstone Private Wealth Solutions, told Squawk on the Street Prices and the dangers of higher interest rates before us. “
If the Fed were to raise interest rates from near zero in the Covid era to protect the economy from overheating, Vienna sees a correction of 10% in the equity markets. A 10% drop in the S&P 500 would bring it down from Thursday’s record high to around 3,700. The broad market index was hardly changed on Friday afternoon.
“I think we could see that, maybe a little more, but I think since the fundamentals are very strong I think the S&P 500 could make up to $ 200 this year,” said Wien . “As a result, I think the bull market will resume and I think we will end the year higher than now.”
In its annual list of ten surprises in 2021, Vienna said in January that after a correction, the S&P 500 could end the year at 4,500, which would be nearly 10% higher than Thursday’s closing price.
Vienna told CNBC that the unexpectedly high rise in producer prices in March on Friday was a worrying indicator of rising inflation, which could push bond yields higher. The 10-year government bond yield rose higher on Friday but stayed well below 1.7%, hitting a 14-month high last month.
The good news, according to Vienna, is that the recovery of the US economy will be a long-term game that could take several years.
“If the 10 years went up to 3%, that would still be a relatively low interest rate [historically]. And if profits remain strong and the virus remains under control, the market can resume its rebound after a correction as this will be a long cycle, “he said.” I think investors will be willing to pay for it. “