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'Too much complacency' could make the next market downturn feel worse than it really is

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Next market sell-off will pave way for new highs, BTIG's Julian Emanuel predicts

BTIG's Julian Emanuel believes the market is vulnerable to a pullback, but his outlook isn't all doom and gloom.

Rather, Emanuel sees it as the next big buying opportunity — even though Wall Street may not embrace it.

According to Emanuel, there's "too much complacency" among investors right now, and that could make the next retreat feel worse than it really is.

"As investors, we were probably taking things a bit too much for granted," the firm's head of equity and derivatives strategy told CNBC's "Trading Nation " on Monday. "You literally had a straight run higher without interruption, 25%-plus off of the lows that we made last December. ... For the most part, people haven't been hedged to the downside."

That appeared to be evident when the major indexes sold off early Monday on renewed jitters that a resolution to the  U.S.-China trade war was in jeopardy. However, the market staged a strong comeback and were well off the lows by the market close.

"Injecting a little bit more uncertainty back into the market refocuses investors on risk and reward," said Emanuel, who has a 3,000 year-end price target, within 100 points of the current level.

It's more than strong market and economic fundamentals making him optimistic that the bull market is intact. The Federal Reserve has a critical role in Emanuel's bullish forecast, too.

Two rate cuts this year?

He contends the Fed will cut interest rates by a quarter point in the September and December meetings. Emanuel's logic: The Fed will want to promote inflation because it's been very soft.

"We do think that cutting will be part of the calculus that moves stocks higher in the second half of the year," he said.

Yet, Emanuel still predicts there could be more volatility in the coming weeks, and he warns a test of the 200-day moving average isn't out of the question. It would take the S&P 500 to 2,775, almost 6% below Monday's close.

"That's where we'd start nibbling away at the sectors that we think are going to outperform going forward," said Emanuel, who includes financials and health care among the groups he likes best in a market pullback scenario.

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There's 'too much complacency' in market, BTIG's Julian Emanuel says