Stocks could shed half their value next year, hedge fund manager Dan Niles warns

Closely watched hedge fund manager Dan Niles sees cracks in the bull market.

Niles, founding partner at AlphaOne Capital Partners, believes stocks could shed as much as half their value next year.

"Late 2019, you're really going to have to start to worry. And, why is that? Well, it's because a lot of the themes that are really good right now, when you get a year from now, they are going to turn out to be really bad," Niles said Tuesday on CNBC's "Futures Now." "That's when the real problems are going to start where you have a 20 to 50 percent type of correction."

He warns economic expansion is getting longer in the tooth — suggesting in a note to CNBC that the "relentless bull market" is breaking down. Niles, who made his name in the tech space, suspects the odds of a recession will rise dramatically late next year.

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"Those things that make the economy strong today like low jobless claims, better commodity prices, etc — that's going to start to turn into a headwind," he said.

He cites oil prices as an example. Over the past year, WTI crude has soared 45 percent, creating robust profits for oil companies. But eventually, those increased costs will filter through to other industries and boost prices across the board.

Niles' bearish prediction came as the Dow failed to extend its eight-day win streak — ultimately registering its worst one-day performance of the month. The S&P 500 saw its worst day since May 2.

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