Perennial bear Marc Faber said Monday that markets have recovered from a "fully oversold" condition and a rebound in stocks was now underway, but warned that new highs in equities were unlikely.
Faber, editor of the Gloom, Boom & Doom Report, told CNBC if new highs were reached, it would a result in just a "limited number of shares making new highs."
"We had a significant correction in many shares, and as of [the] Thursday night close, the markets on a very short-term basis were extremely oversold with only 20 percent of shares above the 50 day moving average," Faber said on "Squawk Box."
Asian and European equities recovered Monday after sharp losses last week following President Barack Obama's authorization of U.S, military airstrikes in Iraq.
"Now a rebound is underway in my opinion. But I doubt we will make new highs, and if we make new highs, maybe just with the very limited number of shares, because the technical damage is quite significant," he said.
Last week, Faber told CNBC that stocks would drop 20 to 30 percent by October, after peaking in the next 30 to 60 days. He's been predicting a bear market in U.S. stocks for three years.
On CNBC's "Halftime Report" last week, Faber also defended his record—claiming that over the past 12 years, his Barron's stock picks on average have been up 22.7 percent annually.
In light of the new developments in Iraq, Faber told "Squawk Box" on Monday that new U.S. involvement Iraq has so far had a limited affect on financial markets, but if the Islamic State makes a move on Saudi Arabia, then markets could react.
Investors should not expect much growth or strong returns in the future as valuations in equities, bonds and real estate are "inflated," he said.
Speaking on the credit markets, Faber said he still owns 10-year U.S. Treasurys, but warned that financial-market weakness would show up first in bonds.
"I think the future returns will be very low. You take a 10-year Treasury, which I still own, from here on, for the next 10 years, the maximum you will earn is 2.42 percent per annum, so I think we will have a very low return environment," he said.
"I think we will see it [a downturn in markets] first and we have seen symptoms of it already in the credit market," he added.
—By CNBC's Jenny Cosgrave