Here’s why one analyst thinks the sell-off could be saved by earnings

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The man who called the latest sell-off believes earnings hold the key to saving the year’s historic rally.

According to Ned Davis Research’s Ed Clissold, the market is going through a panic reaction due to a change in the Federal Reserve’s posture on interest rates.

Yet he also believes the damage will ultimately be contained by strong quarterly earnings and guidance.

“Currently, expectations are for 12 percent S&P 500 operating EPS [earnings per share] growth for 2019. That’s down from 26 percent this year. If we end up around 12 percent, I think the market will be just fine,” Clissold, the firm’s chief U.S. strategist, said on CNBC’s “Futures Now” last week.

He added: “We still think we can get a year-end rally once we get through this weakness here.”

His thoughts came Thursday as the major stock market indexes fell sharply. By Friday, the Dow and S&P 500 rebounded, but it wasn’t enough to pull the indexes back into positive territory for the week. Both indexes are down more than 4 percent in the last five sessions.

Clissold predicted the markets were vulnerable to a 5 to 10 percent pullback on “Futures Now’ about a month ago. He cited seasonal weakness along with geopolitical concerns for the weakness, but contended stocks would recover strongly before year’s end.

“Certainly, it’s a volatile time,” he said, adding that stocks weren’t quite out of the woods yet in a special note to CNBC on Friday.

“After such severe selling, there is almost always a retest. We will be watching for signs of a successful retest in the coming days, namely fewer stocks leading to the downside as the popular averages approach or even breach the lows,” Clissold wrote.