Stock market correction by October: Strategist
The following is a free preview of CNBC Pro. To get more investment analysis and the live CNBC TV feed, please subscribe.
The U.S. stock market will drop by 10 percent at some point during the next five months, pulling the S&P 500 lower to 1,900, Stifel strategist Barry Bannister wrote in a note to clients.
"We believe the S&P 500 has reached the end of the road in terms of being supported by the trilogy of weak commodities, dollar strength and a low 10(-year) yield," Bannister said in Monday's note.
The other big factor is the end of the Federal Reserve's stimulus. His report showed a high correlation between the rise in the S&P 500 and the expansion of the Fed's balance sheet since 2009.
The central bank's assets have leveled since it halted the purchase of Treasurys (QE) last October, yet the S&P 500 has continued higher.
Stocks will correct during "the seasonally weak May-October 2015 period due to the weight of a Fed Assets-dependent S&P 500 pricing model we use," Bannister wrote.
In other words, without the Fed's free money, stocks are worth a lot less.
Read More Top stock picker's strategy for the second half
The report's other big call is that oil prices will surge as the dollar falls, a move that will help trigger the stock correction.
The call for a correction is a reversal of a bullish call the strategist made about U.S. stock market last October after an end of the Fed's quantitative easing caused the S&P 500 to drop almost 10 percent.
Bannister predicted the S&P 500 would rally to a record 2,300 level in a "reasonable" amount of time. He got the direction right, but was a little too bullish as the S&P 500 hit a record price just above 2,100 last month.