In fact, he said, the notion that U.S. markets would not see a 20 percent pullback after eight years of gains "defies the volatility and the history."
"This is good, this is what markets are supposed to do: Psychology and human behavior are supposed to give you the blow-off," he said, adding that this psychology is currently "throwing out a lot of opportunities."
Looking ahead to the fourth quarter of 2016, Gabelli said he sees "really bright spots" in a weakening dollar, rising oil prices, and increased movement on U.S. tax reform. He said these events would only be affected be unexpected shocks like "another Paris or San Bernardino," referring to recent violent attacks.
"Markets go up and markets go down, and this is a down phase," he said. "And then we'll settle down, and then we'll figure out what the values are of the companies."
On the subject of oil, Gabelli said he saw U.S. production coming down in the next six to nine months, but the question will be if either Russia or Saudi Arabia are willing to "blink." And while markets may be feeling the impact of a reduction in capital expenditure and the pain of oil-dependent countries, he said there may ultimately be a multiplier effect from low prices to consumption.
In fact, Gabelli said, the U.S. consumer is a strong part of the economic landscape.
"On balance the consumer is in good shape in terms of where they're spending, and that marginal propensity to consume is going to rise," he said.