For those wondering what it will take for the market to reach new highs, BlackRock's Russ Koesterich channeled a 1990's Clinton campaign mantra by saying "It's the economy, stupid."
Using the theme of James Carville's famous 1992 campaign quote, Koesterich told CNBC's "Futures Now" on Tuesday that the S&P 500 will continue to trade in this sideways and choppy pattern that we've seen this year until there's "significant evidence of growth" in both the economy and earnings picture.
"The key thing for the U.S. market is that we are already at the top of its valuation range. The S&P 500 is already trading at 19 times forward earnings and there's only so much further that multiple expansion can take us," BlackRock's global chief investment strategist said.
Furthermore, Koesterich pointed to the underlying threats of a strong , weak global economy and collapsing energy prices for putting the United States "in the midst of a profit recession." The U.S. dollar index has rallied 10 percent year to date, which has put immense pressure on corporate earnings. Throughout 2015 the S&P 500 has seen back-to-back quarters of decelerating revenue growth, according to FactSet.
"Looking back at history, profit recessions — defined by at least two quarters of consecutive negative earnings growth — typically accompany economic recessions," Koesterich added. However, he doesn't necessarily believe a full-blown recession is on the horizon as he expects "further dollar appreciation will be more muted than earlier this year" and "oil prices have probably bottomed."
Koesterich anticipates the S&P 500 to get a boost heading into the end of the year, as clarity from the Fed could ease short-term volatility. However, he urges investors to pay close attention to economic activity in 2016, as it will be "key for determining whether or not the current profit blip is simply an interruption in the long-term bull market or the beginning of the end."