Portfolio manager says a 'healthy' correction could come if earnings and growth stall

In an situation of precocious valuations, 1 of 2 "catalysts" could origin a marketplace correction.

That's according to Brian Arcese, portfolio manager of the Singapore-based Foord Asset Management, who said markets person been "expensive for rather a while" — the S&P 500 is up astir 23% successful the twelvemonth to date. It has a price-to-earnings ratio supra 27, and some person described it arsenic costly by astir each measure.

"We bash deliberation that a correction would beryllium healthy, but you volition request immoderate benignant of catalyst for that correction to instrumentality place. I deliberation it could beryllium 1 of 2 things," helium told CNBC's "Squawk Box Asia" this week.

"We are seeing economical maturation successful the U.S. slow. [It is] inactive rather healthy, but it is slow, right? That tin beryllium a catalyst," helium said. U.S. GDP grew little than expected successful the 3rd quarter, according to information published Oct. 30.

"If that continues to dilatory a spot more, if we were to spot ostentation tick up again, that could beryllium a catalyst," Arcese said. U.S. ostentation roseate to 2.6% successful October, successful enactment with expectations, per figures published Nov. 13.

Slower net maturation could besides origin a correction, Arcese said, successful an situation of precocious expectations.

"If we look astatine firm net expectations for adjacent twelvemonth — adjacent if you exclude IT and connection services wherever maturation is exceptionally precocious — excluding those earnings, maturation is expected to beryllium 10 to 12% which is comparatively precocious compared to history," helium said.

Goldman Sachs's equity outlook predicted that net volition turn 11% successful 2025 per a enactment past week.

"If you person precocious expectations coupled with precocious valuations, past if you bash spot that net maturation commencement to slow, oregon expectations commencement to rotation off, that could beryllium a catalyst for correction," Arcese said.

Factors including U.S. GDP growth and net maturation arsenic good arsenic falling inflation and interest rates make for a comparatively uncommon combination, Arcese said. "Those factors unneurotic really don't hap that often, right, each astatine the aforesaid time?" helium said.

"That is rather constructive for equities, which is evidently what we're seeing, and the crushed that they proceed to benignant of marque higher highs. We bash deliberation that a correction would beryllium healthy," Arcese said.

One assemblage wherever maturation is not priced successful is utilities, according to Arcese. "They're much costly comparative to wherever they were before, but ... they're inactive little costly than the market," helium said, naming SSE and Edison arsenic stocks Foord Asset Management owns.

The summation successful information centers and maturation of artificial quality requires much electricity, meaning maturation is "coming back," Arcese said.

"At the aforesaid time, regulated utilities request to put a important magnitude of superior into the grid for transmission and distribution, each of which they gain a instrumentality on," helium said.