Perennial bear Marc Faber said Monday that markets have recovered from a "fully oversold" condition and a rebound in stocks was now underway, but warned that new highs in equities were unlikely.
Faber, editor of the Gloom, Boom and Doom report, told CNBC if new highs were reached, it would a result in just a "limited number of shares making new highs".
"We had a significant correction in many shares, and as of [the] Thursday night close, the markets on a very short-term basis were extremely oversold with only 20 percent of shares above the 50 day moving average," Faber said.
Asian and European equities recovered Monday after sharp losses last week following President Barack Obama's authorization of U.S, military airstrikes in Iraq.
"Now a rebound is underway in my opinion. But I doubt we will make new highs, and if we make new highs, maybe just with the very limited number of shares, because the technical damage is quite significant," he said.
Faber said Iraq has so far had a limited affect on markets, but if the Islamic State makes a move on Saudi Arabia, then markets could react.
Investors should not expect much growth or strong returns in the future as valuations in equities, bonds and real estate are "inflated," he said.
Speaking on the credit markets, Faber said he still owns 10-year U.S. Treasurys, but warned that financial-market weakness would show up first in bonds.
"I think the future returns will be very low. You take a 10-year Treasury, which I still own, from here on, for the next 10 years, the maximum you will earn is 2.42 percent per annum, so I think we will have a very low return environment," he said.
"I think we will see it [a downturn in markets] first and we have seen symptoms of it already in the credit market," he added.
-By CNBC's Jenny Cosgrave