Soaring earnings to overtake inflation as big story of year, Federated's Steve Chiavarone says

Federated Investors' Steve Chiavarone is not a bull who's second guessing himself.

The February correction may have rattled Wall Street, but the portfolio manager maintains the S&P 500 will muster enough momentum to climb 12 percent to 3,100 — 12 percent above Monday's premarket level.

His reason? The story of the year will ultimately be earnings, not inflation.

"Earnings are set to grow 20 percent this year," he said Friday on CNBC's "Trading Nation." "This isn't just financial engineering. You've got 8 percent, 9 percent revenue growth across the board. It's solid. It's sustainable."

Chiavarone may be optimistic, but he doesn't think investors will be spared from wild swings along the way.

With Jerome Powell just starting out as Federal Reserve chairman and midterm elections coming in November, he contends the stock market is vulnerable to more steep pullbacks on uncertainty — and says the dips would be an ideal time to buy.

It's a call he's made before. On Jan. 19, he said the odds were high that stocks would soon run into trouble. Just two weeks later, a violent correction erupted. It came on jitters surrounding a potential inflation spike signaled by wage-growth data.

The stock slide sparked a surge in the 10-Year Treasury yield. There's speculation that if the yield jumps over 3 percent, it could trigger another setback for stocks. On Monday, the 10-Year yield was down slightly, to 2.846 percent.

But Chiavarone doesn't see a damaging situation unfolding unless the yield ticks toward 5 percent.

"We're all taught that the multiple compresses as rates go higher, and that's right after you get to the neutral rate. We're not there yet. We think the multiple expands until we hit closer than 3.5 percent," Chiavarone said. "There's a day where that will be right. That day is not today."

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