Money manager warns the S&P 500 will drop another 6%

Trade War China

From Stephanie Landsman: Avalon Advisors’ Bill Stone sees U.S.-China trade war jitters inflicting more market pain.

According to Stone, a bonafide correction could be underway as the market reprices lowered odds of a trade deal.

“You’ve got to be ready for more volatility here, ” the firm’s chief investment officer told CNBC’s “Trading Nation ” on Friday.

Stone’s pullback warning suggests the S&P 500 would fall another 6% from Friday’s close. It’s already down 4% since the index’s all-time high hit on May 1.

Despite his dour outlook, Stone, who has $8.7 billion in assets under management, isn’t wandering into the bear camp. He still believes it will be a banner year for stocks.

Stone has a 3,025 year-end price target on the S&P 500, a 7% jump from current levels. His base case is that the U.S. and China will eventually agree to a trade deal and stocks will reach fresh record highs.

“We think we still get there. That’s why I think it ends up being the pause that refreshes,” he added.

Since Stone believes a resolution is in the cards, he sees opportunities in some of the most challenged groups.

“You have to look more on the cyclical side for your opportunities right now during the downturn,” he said.

Stone is overweight the consumer discretionaryenergy and industrials.

The SPDR S&P 500 ETF Trust (SPY) was trading at $283.23 per share on Tuesday afternoon, up $0.45 (+0.16%). Year-to-date, SPY has gained 6.56%.

SPY currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 154 ETFs in the Large Cap Blend ETFs category.

This article is brought to you courtesy of CNBC.