Beware the Coming 25 Percent Correction: Pro

Javier E. David|Special to

Renewed jitters over Europe, growing fears about China and the U.S’s precarious fiscal situation all bode poorly for the recent stock rally, which could correct as much as 25 percent in the coming months, an investment manager said Wednesday.

Market participants often refer to unanticipated occurences that rock the global economy as "black swans". Yet Stanley Crouch, chief investment officer at Aegis Capital, told CNBC’s “Street Signs” that a “freckled swan” of powerful macroeconomic headwinds is building momentum.

“That’s the swan with the patches of all the problems that we already know are out there but they’re all in a combination,” he said.

With the euro zone’s debt crisis reaching a crescendo and the U.S. election outcome still uncertain, “we’ve got plenty of issues to worry about,” said the investor, who helps Aegis manage about $2 billion in assets. (Read more: Just When Investors Thought Europe Was Fixed.)

Since June, equity markets have surged, defying the predictions of many skeptics who argued that looming difficulties in the world’s economy would soon put a damper on the rally. (Read more: The Most Hated Stock Rally in History?)

25% Correction Coming?

Crouch argued that stocks have rallied largely based on bond-buying expectations from the Federal Reserve, rather than healthy factors underpinning the global economy. The Fed’s unfurling of more quantitative easing was mostly a non-event that had already been factored into stock prices.

“We paid in advance for this classic ‘buy the rumor, sell the news’ event,” Crouch said. While reluctant to say how deep major stock benchmarks could fall, he warned that the Dow Jones Industrial Average could “possibly” break 10,000 with the S&P 500 Index revisiting its lows from last fall.

“I think we see more downside pressure here ,” he said.