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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Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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