S&P 500 Is Set to Fall 15% Says Top Strategist

With the S&P 500 off to a roaring start this year and nervously sitting at a 4-year high, at least one Wall Street pro says it is time to revisit the defensive theme that dominated the market last year. And he's someone you should listen to.

Adam Parker, U.S. Equity Strategist at Morgan Stanley made the most accurate market call for 2011. He now says it's time to think about the 2nd half and 2013 because his crystal ball shows "risk aversion" will make a comeback.

"We think the risk-reward is skewed to the negative as the year unfolds," Parker says in the attached clip. He cites a year-end target of 1167 for the S&P 500 --a 15% drop from current levels.

Parker's strategy for moving into a defensive position is built on the backs of two sectors; Utilities (XLU) and Healthcare (XLV), and their proven ability to deliver "more achievable estimates, higher cash balances, higher dividends."

If all of this sounds familiar, that's because it marks a do-over of 2011 and a rotation out of what has worked since this current bull run began in October.

"Timing is everything," Parker says, reminding us what things were like just five months ago. "Cyclicals had really become cheap relative to defensives but they've really snapped back," to the point where we have seen a big reversal in almost every sector.

Interestingly, Parker's defensive strategy shuns half of the usual players, namely Consumer Staples (XLP) and Telecom (IYZ).

"Given the high oil price, staples tend to have more exposure to rising commodities," he says, while pointing out that since AT&T (T) and Verizon (VZ) dominate this top-heavy sector, any slowdown would likely mean "more risk to Telecom dividends than regulated Utilities."

Also different is Parker's belief that certain large cap Tech stocks (XLK) can now be considered defensive too, with their low betas (volatility), high cash balances, and reasonable prices given their superior growth.

While bull markets normally need a catalyst to end, few would argue that investors haven't become a bit complacent given a 30% run in less than half a year, which to me, makes a contrarian view like Parker's worth listening to.