10% correction is 'appropriate,' analyst says

Uncertainty about the Federal Reserve and potentially weak first-quarter GDP and earnings could send U.S. stocks 5 to 10 percent lower in the coming months, an analyst said Tuesday.

"A 5 to 10 percent correction would be completely appropriate," Phil Orlando, chief equity strategist at Federated Investors, said on CNBC's "Power Lunch."

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The three major U.S. indices have all jumped more than 10 percent in the last year. As stocks sit at high valuations—and some indices flirt with record highs—they could slip significantly on disappointing data, Orlando said.

The Dow, S&P 500 and Nasdaq were trading broadly lower Tuesday.

A trader works on the floor of the New York Stock Exchange.
Adam Jeffery | CNBC
A trader works on the floor of the New York Stock Exchange.

Federated expects weakness in first-quarter corporate earnings numbers and U.S. GDP. Many major companies start reporting first-quarter results in early April, while GDP results are expected near the end of the month.

Those factors—combined with confusion of when the Fed will move to normalize interest rates—could push stocks and U.S. Treasury yields lower as investors seek safe haven plays, he said.

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Orlando maintains a long-term bullish outlook for U.S. stocks, though, as he has set a year-end S&P 500 target of 2,350, nearly 300 points higher than where it traded Tuesday.

Mike Holland, chairman of Holland and Co., agreed that stocks could broadly fall before rallying again.

"I think we're going to lose a little money before we make a little money," Holland told "Power Lunch" on Tuesday.

He noted that the Fed has put the U.S. "firmly in a bull market," adding that "the easy part is over."