Despite sell-off warning, $8 billion money manager sees stocks hitting record highs this year

Avalon Advisors' Bill Stone sees stocks hitting record highs this year, but getting won't come without trouble.

"This is as good as it gets, at least in the short run," the firm's chief investment officer said Monday on CNBC's "Trading Nation."

Stone, whose firm has $8 billion in assets under management, expects a near-term pullback to strike stocks — citing the recent rally's "torrid pace" as a major reason.

"This rebound ranks as the strongest non-recession rebound in the first sixty days," Stone wrote in his weekly note.

And, that's why he believes the rally is getting long in the tooth.

"It's time to think about getting a little bit more defensive," Stone said. "When you look at it in history, it certainly looks like we're ahead of ourselves."

If the market begins consolidating, Stone said, he would consider buying energy, health care and consumer discretionary names first. Plus, he would tone down exposure to groups such as semiconductors and financials, which have been firmly in rally mode.

According to Stone, the pullback won't hit as hard as the corrections did in 2018. However, he expects it to be big enough to rattle Wall Street, at least for the near term.

"The good news is when you kind of stick with that theme of the nonrecessionary times, one year out after the bottom, you're typically up 28 percent," he said.

That statistic shows up in his forecast. He expects the S&P 500 to hit 3,000 by year's end — a 28 percent gain from the December low.

"Valuations still look pretty good," Stone said.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

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.

Follow Michael Santoli on Twitter @michaelsantoli

Read more