The bear market is here, and stocks will plunge at least 20 percent, Ned Davis Research warns

The wild trading that's gripped Wall Street may be no ordinary correction.

According to Ned Davis Research's Ed Clissold, a bear market is officially here.

"If you take this as a typical bear market, not associated with a recession, it's going to take you down around 20 percent — maybe a little bit more," the firm's chief U.S. market strategist told CNBC's "Futures Now" last week. "That's what we need to be thinking about over the next several months."

A bear market is defined as an environment when overwhelming pessimism sparks a 20 percent drop or more from recent highs.

In this case, it would wipe out 588 points from the S&P 500's all-time high of 2940.91 hit on Sept. 21. The index closed Friday in correction territory at 2,633.08. That's down 10 percent from the high and 4.6 percent for the week.

Originally, Clissold called for a bear market to hit Wall Street in 2019, due to jitters over interest rate hike risks, U.S.-China trade tensions and slowing growth in earnings and the economy.

However, he decided to move up his forecast due to "severe" technical damage from the October correction. Now, it appears the market may soon get hit with another batch of discouraging news.

"Earnings growth is becoming a front-burner issue. Everybody expected it to slow down next year because we don't have the benefit of tax cuts. But the slowdown is probably going to be more than expected," said Clissold.

Earnings revisions have "already started to come down, and that's going to continue to plague the market for a few more months."

He may be predicting a deep pullback, but he does not see any signs of a recession. By spring, Clissold said, the pain will be largely behind the Street.

"The average nonrecession bear lasts about seven months. So, that'll take us into early second quarter, and then we can look for a bottoming process from there," Clissold said.

Despite the looming trouble, Clissold expects stocks will stage a healthy rally in the second half of 2019 and the market will ultimately see high single-digit to low double-digit gains by the end of next year.


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