Analyst: Market tank in December in late stages; sharp rebound coming in 2019

While it is certainly true that the stock market has taken a beating in recent weeks, posting the worst December in recent memory, one economist believes that the worst is over and that 2019 will see substantial gains in the Dow Jones and other indices.

“You’re hearing a lot of calls for recession, you’re hearing a lot more people calling this a bear market,” Jim Paulsen, the Leuthold Group chief investment strategist, said Friday on CNBC’s “Trading Nation. ” “We’ve done a lot of damage here with sentiment.”

There has certainly been some damage. The S&P has finished its worst week since 2011 and is now off some 18 percent since its all-time high of 2,940 on Sept. 21.

Meanwhile, the Dow has also been under pressure, falling some 17 percent from its record high on the same day. The Dow’s close on Friday was the worst showing since August 2017.

But that’s about to change, Paulsen says.

“We’re getting close to the bottom,” Paulsen said, adding that it appears negative sentiment is “getting close to burning out.”

There has been nervousness regarding the ongoing trade war with China as well as slowing economic and earnings growth, and these have negatively impacted the market. Also, the Federal Reserve’s interest rates policy — that is, the raising of rates — has been a huge determining factor in the markets’ downturn.

But Paulsen believes the market is set for gains next year.

“I think economic reports are going to go soft coming up. But if they do, that might be a catalyst that convinces the Fed and bond vigilantes and investors, in general, that the rates are no longer going up,” he said. “The Fed may even ease, and maybe we have a 2019 year where the market can advance without rate increases.”

He said he believes it’s possible to see the indices climb back to the record levels set this year, but that the bull market is also likely to end next year as well.

“I do think we might be getting close to one last good buying opportunity, and one last run here before this bull finally does end,” he said.

Meantime, “It’s OK maybe to start leaning in and buying some of these things that people are starting to give away.”

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