Stocks could plummet 20 to 30 percent next year in biggest drop since financial crisis: Ned Davis Research

via @stephlandsman

The bulls may be treading water.

According to Ned Davis Research’s Ed Clissold, there’s a high probability a record year-end rally will give way to a painful 2019.

“You could be looking at the first 20 percent-plus decline in the S&P since the financial crisis,” the firm’s chief U.S. strategist said Tuesday on CNBC’s “Futures Now.”

His worst-case scenario is a 30 percent plunge next year.

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“Our primary list of concerns is on the earnings front,” Clissold said. “Earnings growth north of 20 percent isn’t sustainable, especially when you’re nine years into an economic expansion.”

Clissold, a secular bull, isn’t calling for a major, drawn-out recession. Nevertheless, he said he’s on bear market watch due to warning signs indicating a tired bull market.

“We’re certainly a lot further along than we were a couple of years ago certainly in the economic cycle,” Clissold said. “From a technical standpoint, leadership has certainly gone from being more aggressive to more defensive. … More defensive sectors like health careutilitiesstaples and telecom have been leading as of late.”

Despite his cautiousness, Clissold hasn’t officially downgraded his positive outlook on U.S. stocks. His S&P 500 year-end price target is 2,900 — about a 1.5 percent gain from current levels. He said stocks could soon see a short-lived pullback mainly do to seasonal trends at any time, and then grab gains as the year winds down.

“From [the] 2009 lows, whenever we got a pause, we’d break out of what we’d call a breadth thrust. You’d get a huge percentage of stocks moving up together, and that’s a sign of a very healthy market,” Clissold said. “We haven’t gotten one since the February correction, and that’s a change in character. It doesn’t mean the market can’t rally for a while. But, that’s what happens at the end of a bull market, not at a beginning for a bull market.”

 

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