The biggest risk to the stock market is interest rates moving higher more quickly than expected, J.P. Morgan Funds Chief Global Strategist David Kelly told CNBC on Friday.
"We're still cautiously overweight U.S. equities," Kelly said in a "Squawk Box" interview. But he thinks rates are "seriously mispriced" in the bond market, and correcting that imbalance could be a drag on stocks.
On Wednesday, the Federal Reserve hinted at a slightly faster pace of interest-rate increases starting next year, but suggested borrowing costs in the long run would be lower than previously expected.
The Fed cut its forecast for U.S. economic growth this year to a range of 2.1 percent to 2.3 percent from an earlier projection of around 2.9 percent. Forecasts for 2015 and 2016 were unchanged. Policymakers also reduced their bond-buying program by another $10 billion to $35 billion a month pace.
"The bond market is unbelievably more dovish than the Federal Reserve itself," Kelly said. "I think the Fed's forecast for the economy are wrong. And their policy is too dovish based on those policies."
At her Wednesday news conference, Fed Chair Janet Yellen also played down recent concerns about inflation.
Pimco Deputy CIO Mark Kiesel agrees. "We don't have broad-based inflation. And because of that, interest rates are going to stay lower for longer, and that's going to revalue equities and real estate to higher levels."
Phil Orlando, chief equity strategist at Federated Investors, also believes there's more upside for stocks. "The market is just sort of ignoring what's going on in the Middle East and saying stocks are going higher."
But he is worried about price pressures on the economy. Looking at key inflation metrics in recent months, he said the "bubbling up" concern is warranted.
As a result, Orlando predicted on CNBC that the 10-year Treasury yield, currently around 2.64 percent early Friday, could be at 3.5 percent by January.
Despite that, he said, "we're sticking to our guns that, we think, 2,100 on the S&P is the right number [in 2014]." That would be 7 percent higher than current, record high levels, and 13.5 percent higher on the year.
Orlando won't rule out hitting "an air-pocket" in stocks over the summer, but that becomes as a "buying opportunity."
Kiesel said: "There are good reasons for stocks to be at these levels." He cites a healing in the private sector, supported by central banks around the world, as a major reason.
Kiesel, Orlando, and Kelly acknowledged the low stock market volatility, with the J.P. Morgan Funds strategist offering the best explanation.
"The problem is markets tend to rise carefully and fall much more sharply," Kelly said, urging investors to keep that in mind.
—By CNBC's Matthew J. Belvedere. Reuters contributed to this report.