Market correction is a coin flip, warns portfolio manager

The chance that there is a correction this year is the same as the chance that a flipped coin will come up heads, according to one portfolio manager.

Corrections are often defined as market drop of 10 percent or more, and Chad Morganlander of Stifel Nicolaus thinks that even with less than 3 ½ months left in 2016, such an event is as likely as not.

"It's all about uncertainty here, uncertainty about the election, uncertainty about global growth and uncertainty about earnings," Morganlander said Friday on CNBC's "Trading Nation." "Let's face it, you [also] have this signal from the [European Central Bank] as well as uncertainty about what Fed policy will be going forward."

The markets have been up and down as of late leading into this week's FOMC meeting, which could possibly result in the announcement of a September rate hike on Wednesday. This, coupled with bumpy commodities prices and an overall disappointing earnings quarter, has traders and portfolio managers like Morganlander cautious about the months ahead.

On the other hand, Nicholas Colas, chief market strategist at Convergex, says there's only a 10 percent chance of a correction. However, he does still see a 5 percent drop as likely.

"The 5 percent pullback, I believe, comes on basically the first half of earnings season, which is weaker than expected, or that roll over in oil," he said Friday on "Trading Nation." "Or perhaps [it will come from] the Fed actually raising rates next week, which is kind of on the table, even if the market really doesn't believe it."

But not everyone believes that a drop in the markets is ahead. Fundstrat Global Advisor's Tom Lee actually sees a 90 percent chance that the market will continue its run this year based on historical data since 1940.

The markets rose Monday, with the Nasdaq making yet another intraday record high. CME's FedWatch tool currently pegs the chances of a September rate hike at 15 percent leading into this week's Fed meeting.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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