Wharton finance professor Jeremy Siegel is known for predicting market milestones from Dow 20,000 to Dow 25,000. Now, the long-time bull is turning cautious — suggesting the probability of another leap higher is dwindling.
Siegel makes it clear that he's not completely abandoning his bull case for stocks. He considers the stock market a short-term buy. However, he believes it's vital for investors to be aware of growing risks stemming from trade tensions and the Federal Reserve's policy because they could spark a deep sell-off before year's end.
"This market has had a great run, and I wouldn't be surprised to see another correction," he said Monday on CNBC's "Trading Nation."
If another deep sell-off batters U.S. stocks, Siegel expects it'll look like the one that began on Feb. 2. By early April, the S&P 500 was down 11 percent from its Jan. 26 all-time high. But it staged a powerful comeback, and now the index is up more than 9 percent so far this year.
But this time, a snapback may not be in the cards.
"We have some major challenges. The trade war is not yet resolved," he said, adding that it puts pressure on the country's gross domestic product.
His second biggest risk to the stock market comes from the Federal Reserve, which begins a two-day meeting Tuesday.
"We're going to see how hawkish they are with the labor market as tight as it is. I still believe that they're going to be on track for four increases this year," Siegel said. "The question is how will they feel about another raise in December. And, I think between the trade situation and the interest rate situation, and then of course the midterms in November, there are a lot of challenges facing Wall Street."
And, that could set up next year as a rough year for gains.
"There's going to be a little bit of disappointment on 2019," Siegel said. "I'm not going to call it an end to the bull market. I'm going to just call it a potential sideways reaction to economic news."
