The S&P 500 hit a record high this week, surpassing its previous record set on February 19 and wiping out all losses from the coronavirus pandemic sell-off.
The index is now up 51% since its March 23 bottom.
But with the market flying higher, risks are mounting.
The coronavirus pandemic is still raging, the economy is struggling, Republicans and Democrats are locked in a stalemate over the next stimulus bill, tensions are rising between the U.S. and China, and the U.S. is rapidly approaching what is bound to be a contentious presidential election in November.
With these big risks to the market, Miller Tabak’s Matt Maley says stocks are set for a near-term correction of 10% to 15%.
However, Maley has a more “constructive” view on how the market will perform in the fourth quarter and says it’s time to “raise cash now” to take advantage of the market’s imminent correction so investors can maximize profits in the rally that is sure to follow.
“Those who followed our suggestions in Jan/Feb were very happy when March and April cam around,” Maley said, “and we think they’ll be very happy over the next two months as well if they follow the same strategy.”
One thing that will be key for the rest of this year will be the Federal Reserve.
“The Fed’s number one concern is the credit markets, not the stock market,” Maley said. “Only a severe decline in stocks would destabilize the credit markets, not a 10%-15% correction.”
Maley expects the Fed will turn the spigots back open when this correction threatens to turn even uglier, similar to what was seen between mid-February and mid-March this year.
And when they do, Maley says it could “lead the S&P to rally toward 3,600, but we also believe that will be very tough for he stock market to rally THAT strongly without experiencing a normal/healthy correction beforehand.”