Stocks could enter a bear market before bottoming, says market watcher

Amid sharp sell-offs and quick rebounds, one strategist forecasts a possible bear market for Wall Street before all is said and done.

"I wouldn't be surprised if we saw a 15 percent or even a 20 percent move off the highs before this thing finally bottoms out," Matt Maley, equity strategist at Miller Tabak, told CNBC's "Trading Nation" on Tuesday.

As of Tuesday's close, the S&P 500 was 9 percent below an all-time high set on Jan. 26, putting markets short the 10 percent threshold indicative of a correction. The benchmark index gapped 12 percent from January highs during a sell-off on February. A drop of more than 20 percent from those January record highs would signify a bear market.

Wild swings on the market have become commonplace since a February sell-off kicked off the return of volatility to equities. Since the beginning of the year, the S&P 500 has moved by at least 2 percent seven times. The index never saw such swings in 2017.

Maley does see some silver linings in the charts. For one, the S&P 500 has managed to hold above a trendline dating two years. It has also held around its 200-day moving average. The index closed Tuesday's session 0.6 percent higher than that key support level.

"However, I'm still more cautious on an intermediate-term basis. I think there's too many uncertainties in the world right now," said Maley.

Interest rates on the move are one major unknown for markets, he says. Long-term interest rates broke above their downward trendline earlier this year, which signaled an end to the multidecade bond bull run. The falling rates cycle had lasted roughly 36 years.

"Since then, we've had this issue with regulation with the technology stocks, we have widening credit spreads, we have the flattening of the yield curve, and, of course, the Fed is shrinking the balance sheet," said Maley.

Gina Sanchez, CEO of Chantico Global, also sees the potential for more stock market pain as economic expansion in global markets slows. A slowdown should catch up to U.S. markets, she said.

"We're not quite seeing the peaking that you're seeing in the rest of the world because we have had tax stimulus," Sanchez told "Trading Nation." "However, we can't forestall it forever. At some point, we will have to sort of face the fact that what goes up must come down."

The market peak should come faster once the Fed picks up speed in normalizing monetary policy, says Sanchez. The Fed is expected to increase rates at least two more times this year after a hike at the March meeting. The central bank is simultaneously unwinding its balance sheet.

"It's time for us to sort of take a step back and say, how much of this is demand driven? And how much of this has been the result of this extraordinary fiscal expansion now that we start to pull back the monetary accommodation?" said Sanchez. "That's the question the markets are asking themselves."

As of Tuesday, the S&P 500 has fallen 2 percent this year, the FTSE 100 in London 8.6 percent, Germany's DAX 7 percent, Japan's Nikkei 6.5 percent and France's CAC 40 3 percent.

Vote
Vote to see results
Total Votes:

Not a Scientific Survey. Results may not total 100% due to rounding.

Videos

Trades to Watch

Trader Bios

About

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.

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.

Read more

Connect