Brian Arcese, a portfolio manager at Singapore-based Foord Asset Management, highlighted the possibility of a market correction if U.S. GDP growth slows and inflation rises. He noted that markets have been "overvalued for some time." While stocks are projected to grow by 11% in 2025, falling short of these expectations could trigger a market pullback, he explained.

Market Correction on the Horizon? Key Catalysts to Watch

In an environment marked by high market valuations, two major factors could act as catalysts for a market correction. Brian Arcese, portfolio manager at Singapore-based Foord Asset Management, highlighted this during an interview with CNBC's Squawk Box Asia. He noted that markets have been "expensive for quite a while," with the S&P 500 up about 23% year-to-date and a price-to-earnings ratio exceeding 27, making it overvalued by many measures.

"We believe a correction would be healthy, but it requires a clear trigger," Arcese explained. He pointed to two potential factors: slowing economic growth and rising inflation. Recent data shows U.S. GDP growth in the third quarter came in lower than expected. If growth continues to decelerate or if inflation ticks up again, these could serve as catalysts. In October, U.S. inflation rose to 2.6%, aligning with forecasts.

Earnings Growth Under Scrutiny

Arcese also flagged slower earnings growth as another possible trigger for a correction. Despite high corporate earnings expectations, any slowdown could weigh heavily on valuations. Excluding the tech and communication services sectors, earnings growth for 2024 is projected at 10-12%, which is historically high.

Goldman Sachs projects 11% earnings growth in 2025, but Arcese warned that high expectations, paired with elevated valuations, leave little room for error. "If earnings growth falters or expectations decline, a market correction could follow," he said.

A Rare Market Environment

Arcese emphasized the unusual combination of U.S. GDP growth, falling inflation, and declining interest rates, which has supported equity markets reaching record highs. However, he reiterated that a correction could help reset valuations to more sustainable levels.

Opportunities in Utilities

While many sectors are overvalued, Arcese pointed to utilities as a promising area. Despite being pricier than before, utilities remain relatively affordable compared to the broader market. He highlighted stocks like SSE and Edison as examples Foord Asset Management currently holds.

Arcese explained that rising demand for electricity, fueled by data centers and artificial intelligence, is driving growth in the utilities sector. Additionally, regulated utilities are investing heavily in grid infrastructure, earning returns on these capital expenditures. This makes the sector an attractive investment option amid broader market uncertainty.

By keeping an eye on economic growth, inflation trends, and earnings expectations, investors can better navigate potential market corrections while identifying opportunities in undervalued sectors like utilities.