Futures Now

These three conditions imply stocks will plunge more than 40 percent during next bear market

Record highs will ultimately give way to 40 percent plus plunge, Wall Street veteran warns
Record highs will give way to 40 percent plus plunge, Wall Street veteran warns

Wall Street veteran Sam Stovall is warning stock investors the longest bull market on record will end with an epic meltdown.

According to the CFRA chief investment strategist, it's a side effect of an unprecedented business cycle.

"Three conditions: Very long, very high, very expensive," Stovall said Tuesday on CNBC's "Futures Now." "History would imply that be careful because now we're likely to fall into a very deep bear market when it does finally hit with the average decline being close to 40 percent plus."

His latest thoughts came as the Dow was hitting record highs. The blue chip index is now up more than 8 percent this year. The is performing a tad better — up more than 9 percent for 2018.

Since the bull market began on March 9, 2009, the Dow and S&P 500 have soared more than 300 percent each. For now, Stovall doesn't see any near-term signs that the win streak is about to end.

He remains confident stocks will see a fresh string of new highs in the final months of the year. Referring to history as a guide, Stovall noted that the fourth quarter is pretty strong during midterm election years, and seasonality points to more gains. He believes it will be easy for the S&P to grab another 80 points and break above 3,000 by year-end.

However, 2019 may be where the troubles begin.

"A lot of the euphoria, a lot of the optimism, is already built into share prices," he said. "How much more [in earnings] can companies deliver? Expectations are for a 22 percent gain for the entire calendar year 2018. Then it slips to a 10 percent gain in 2019. Those optimistic numbers are already built into the market."

Despite his subdued bullishness going into next year, his rolling S&P 500 12-month target is 3,100, about a 6 percent gain from current levels. His forecast is based on the idea that economic conditions don't suggest a recession will hit in that time frame.

"Nobody knows for sure when the music will actually stop," Stovall said. "But I think it's just a matter of time."