US Markets

Stocks are one bad headline away from 5-7% drop: Expert

Key Points
  • If Trump's agenda is stalled, there are going to be problems for the market, UCX's Jack Bouroudjian warned.
  • Bruderman Brothers' Oliver Pursche believes right now investors should be cautious.
  • However, Jim McCaughan, CEO of Principal Global Investors, is still pretty optimistic about U.S. equities.
Closing Bell Exchange: I think the market likes no surprises

The stock market is "one bad headline" away from a 5 percent to 7 percent drop, expert Jack Bouroudjian warned on Wednesday.

Investors are eagerly anticipating the Congressional testimony of former FBI Director James Comey on Thursday, and on Wednesday they appeared to hope it would be less damaging to President Donald Trump than previously feared.

U.S. stocks closed higher after the release of Comey's full opening remarks about Trump asking him to "drop" the probe into former national security advisor Michael Flynn.

However, Bouroudjian, chief economist and co-founder of UCX, told CNBC's "Closing Bell" that June has been historically been a bad month — and that is now coupled with "real serious headline risk."

A trader works on the floor of the New York Stock Exchange (NYSE).
Brendan McDermid | Reuters

The concern is how Comey's testimony and the investigation into Russia's alleged meddling in the U.S. election will effect Trump's agenda.

Oliver Pursche, chief market strategist at Bruderman Brothers, believes it is at best a distraction but is more likely something that stalls the Trump agenda, including tax and health-care reform, that the market's growth has been based on.

"That's very problematic because we're not seeing 3 percent plus GDP growth, we're not seeing strong numbers around the globe. You've got oil that fell today," he said in an interview with "Closing Bell."

"At this point investors are better to be cautious — tone down risk, stick with high quality stocks, stick with dividend payers, avoid some of the high fliers."

Bouroudjian agrees.

"If we don't get this pro-growth agenda passed through, we're going to have problems," he said.

He also believes the bond market is signaling there is a problem. The yield on the benchmark 10-year Treasury hit the low of the year on Tuesday.

"It's very, very difficult to really get bold on this market at this level," Bouroudjian said.

However, Jim McCaughan, CEO of Principal Global Investors, is still pretty optimistic about U.S. equities.

He believes there will be a continued cycling between different sectors and different stocks, including a possible setback in tech.

"This is a healthy environment in which to be a stock picker in, in which to be buying stocks on setbacks," he told "Closing Bell."

—CNBC's Fred Imbert contributed to this report.