Market bull's warning: Stocks could get spooked by year-end

He called the October correction, and now that same money manager believes stocks are at risk for another leg lower.

According to Federated Investors' Steve Chiavarone, last week's midterm election was just one of three key events that could spook the markets again before year's end.

He lists President Donald Trump's meeting with President Xi Jinping on U.S.-China trade on Dec. 1, and the next Federal Reserve meeting as near-term hurdles. With the markets breaking below their 200-day moving averages in October, Chiavarone sees them in a weaker position to handle uncertainty generated by those events.

"We ultimately think markets are going to move higher into the back end of the year," he said Friday on CNBC's "Trading Nation. "But because we broke below those key technical levels, there is some risk of more downside, and we're watchful of that."

Chiavarone, who helps run the Federated Global Allocation Fund, maintains his long-term bullish outlook on stocks. He predicts by the end of 2019, the S&P 500 will reach 3,500, a 23 percent surge from current levels.

"We want to emphasize ... that the long-term bull market remains in place," he added. "The economy is growing, corporate earnings are growing, inflation remains benign, [and] we don't think we have a Fed that is going to kill the economy."

"We need to get through a period of volatility."

His thoughts came as the major indexes tried to rebound from their October losses. The Dow gained almost 3 percent last week while the S&P was up just over 2 percent. The S&P is off almost 6 percent from its all-time high hit on Sept. 21.

"We still see positive fundamentals, but we need to get through a period of volatility," he said.

Much of his bullish forecast is based on the notion that the Fed will hike less aggressively than the markets anticipate.

"We think they [the Fed] will eventually soften their tone, but that's likely to occur in 2019 — not before the meeting in December," Chiavarone said. "That'll be a catalyst higher. It's just going to take some time."

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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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