Strategist warns of a ‘huge recipe for a really sharp correction’ within 18 months

Valuations not seen since the tech bubble. Signs of slowing earnings growth. Global recession risks on the rise. An ineffective approach by the Fed.

What’s it all mean?

‘This is a huge recipe for a really sharp correction in global equity markets at some stage in the next 18 months.’

That’s the alarm sounded on CNBC Thursday by Ian Harnett, chief investment strategist at Absolute Strategy Research.

He suggests that the Federal Reserve is moving toward “insurance cuts” to its benchmark rates to keep economic growth on track to maintain a healthy jobs market. But he’s not convinced it will work.

“We don’t think insurance cuts will be enough, we actually think earnings growth is not going to be 7% this year, it’s going to be -5%, and maybe even -10,” Harnett explained, added that price-to-earnings ratios signal a “really large” decline.

“We are looking at these recession risk models rising, credit impulse numbers in the states are weak, that tends to bring unemployment up and tends to bring equity markets down,” he said.

Watch the interview:

No sign of such a correction this week, as the Dow Jones Industrial Average DJIA, +0.77% Nasdaq COMP, +0.23% and S&P 500 index SPX, +0.27% continue charging higher.

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