Market panic enters late stages, Jim Paulsen says

The Dow is also getting pummeled, down almost 17 percent from its record high. It saw its lowest close on Friday since August 2017.

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

Jitters over the trade war with China, slowing economic and earnings growth and the Federal Reserve’s policy on interest rates have been largely driving this year’s downturn.

However, that could soon change.

“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.”

According to Paulsen, that could help wipe out negative sentiment and spark a rally that will bring the S&P 500 back to its all-time highs in the first half of 2019.

WATCH: Don’t panic when stocks are getting slammed

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