Markets are significantly undervalued in terms of corporate earnings, and stocks are set to bounce back with a vengeance, Christian Blaabjerg, Strategist at Saxo Bank, told CNBC Friday.
Bearishness has dominated the market in recent weeks, and stocks officially entered correction territory on Thursday.
The Dow has fallen 10.2 percent decline since April 26, and The S&P 500 fell to 1,071 yesterday, a 12 percent decline from its April high.
In the short-term, stocks won’t rally, and may even continue their downward trend, with the S&P 500 possibly testing "the 1,000 level within a couple weeks,” Blaabjerg said.
But corporate earnings have easily surged past Street forecasts, with 77 percent of all companies beating expectations, compared to just 16 percent missing conesnsus targets.
“We had a better-than-expectations earnings season behind us," Blaabjerg said.
"So in the long term, I’m still optimistic on equities.” Earnings expectations could dive in the medium-term, but in the long-term, we’ll see “a massive boost in earnings," he said. "Unit labor costs are still very low.”
Blaabgerg is particularly bullish on technology and consumer staples. “Technology is my favorite play," he said. "Go long Intel or Cisco. All people are now using BlackBerries instead of normal cell phones.”
Fear and anxiety continue to affect investor decisions because of the sovereign debt crisis and pending financial regulatory reforms, but investors whould watch for moments to re-enter the market, he said.
“I’m looking for European finance ministers to get together and construct a plan on how to deal with debt issues for the euro zone," Blaabjerg said.
"When they’ve told the public how they’re going to tighten their belts, that’s the signal for me to re-enter equity markets.”
The sovereign debt situation continues to be a concern for investors, and governments are being forced to overhaul their budgets significantly, cutting back public spending, while simultaneously raising taxes.
But Blaabjerg said companies won’t be as adversely affected by the changes as expected.
“Politicians are very afraid of the voters," he said. "If companies need to lay off more people due to high taxes, politicians won’t be re-elected. I think there won’t be as many tax increases as predicted.”