Rate jitters are temporary, and stocks will rebound to all-time highs: Federated's top market watcher  

Stocks to overcome rate surge jitters and hit new highs: Federated's Orlando

Federated Investors' top market watcher isn't worried the rate surge will permanently derail the historic stock market rally.

According to Phil Orlando, the 10-Year Treasury note yield will retreat from seven-year highs in the coming days, and stocks will return to another record breaking leap higher.

"We're not the least bit concerned with Treasury yields being at 3.25 percent," the firm's chief equity market strategist said Tuesday on CNBC's "Futures Now. " "What the problem here is the speed — the rapidity — with which we've gone there. We've gone from 3.05 [percent] to 3.25 in a week, and that's very difficult for the market to be able to digest that in such a short amount of time."

He considers the move a knee-jerk reaction to the Federal Reserve's latest decision to raise rates by a quarter point.

"The interest rates are higher because the economy is doing well, and the Fed is tightening policy," said Orlando. "This is what's supposed to happen at this point in the economic cycle."

He maintains the will bounce about 7 percent by 2019, thus hitting his 3,100 price target. Yet, he's not eliminating the risk of a downturn, citing the stock market's strong double-digit percent returns since April.

"We did expect a correction. We think that correction could be 5 percent or so," Orlando said. "We're probably, you know, halfway through that at this point."

The S&P 500 is down about 1.5 percent in the past week. He contends it's an optimal buying opportunity, predicting that a strong earnings season and bullish GDP report will help pull stocks out of the doldrums in the coming weeks.

"As we look at these catalysts over the next couple of weeks — a good earnings season and a good fourth quarter GDP report — I think we're going to end the year on a high note," he said, adding that energy, financials, industrials and small-cap stocks are his top picks right now.

Plus, Orlando doesn't see the gains slowing down as Well Street looks toward next year. For 2019, he has a 3,500 year-end target for the S&P — about a 20 percent jump from current levels.