Kevin O'Leary: Bond market is signaling 'this correction isn't over'

  • Investor Kevin O'Leary says he doesn't think the market correction is over and he's taking his signal from the bond market.
  • He says the bond traders who take duration risk "should be the smartest guys in the world" and they aren't worried.
  • "Until the bond guys get worried and the bond lady sings, this correction isn't over," he says.

Investor Kevin O'Leary doesn't think the market correction is over and he's taking his signal from the bond market, he told CNBC on Monday.

O'Leary, chairman of O'Shares ETF and co-host of "Shark Tank," said he's specifically looking at the credit markets and the large-cap companies that have debt "up their balance sheets." Many of those issuances are coming due in the next 24 months.

"If you really thought that they couldn't pay it back you would have a blowout in the credit markets. And they have barely moved," he said on "Closing Bell."

He said the bond traders who take duration risk "should be the smartest guys in the world" and they aren't worried.

"Until the bond guys get worried and the bond lady sings, this correction isn't over," O'Leary said.

U.S. equities ended lower on Monday, giving up sharp gains from earlier in the day. The Dow Jones Industrial Average closed down 245.39 points at 24,442.92, erasing a 352-point gain. The blue-chip index was down 566 points at the lows of the day and briefly dipped into correction territory before coming back shortly before the close.

O'Leary said he is looking for bond yields to jump about 200 basis points. That would then show concern, and it would be a signal to buy both credit and equities, he said.

Bob Doll, chief equity strategist at Nuveen Asset Management, said the fundamentals are in flux and that creates uncertainty and volatility.

Recently there were double-digit earnings and good price-earnings, or P/E, ratios, because of the good environment and low inflation, Doll explained.

Now, inflation and interest rates have moved up a bit and that has sparked some concern that the Federal Reserve may go too far in raising interest rates, he said. Therefore, P/Es have to come down.

On the earnings side, there's a view now that earnings aren't going to grow at double digits forever.

"The economy is still good, but it is slowing, and how slow we're going to get is a concern," Doll told "Closing Bell."

"It's a resetting, and that creates all kinds of volatility, and volatility tends to beget volatility," he added, noting that there is a lot of money being managed on a momentum basis.

Disclaimer

Disclosure: CNBC owns the exclusive off-network cable rights to "Shark Tank."