US markets are “behind” a 10% correction, with stocks largely in overbought territory, according to James Demmert, chief investment officer at Main Street Research. Investors are also “very complacent,” as was the case before the last three major dips within this 18-month bear market, he said last week. “If the Fed raises rates at its July meeting along with what we expect to be a hawkish tone, this may be the catalyst that triggers the correction,” Demmert said in a note sent to CNBC. Also, earnings season is underway and many reports will likely include lower guidance that will “make the market vulnerable at these levels,” he said. “Market sentiment is extremely confident, particularly after the debt ceiling breach. The VIX index of investor sentiment is at one of its lowest levels,” Demmert added, referring to the volatility index. “Usually when investors are so complacent, volatility picks up over the next few weeks.” Trigger for a New Bull Market Although many believe the S&P 500 is already in a new bull market, after it closed up more than 20% from its October bear market low of 20%, Demmert said that the bear market is not over yet. still. “We would say yes, we are closer to the end of the bear market. But we’re not there yet,” he told CNBC’s “Street Signs Asia” last week. Some investors don’t consider it the end of a bear market until the S&P 500 hits a new high. Its historical closing maximum is 4,796.56; the S&P 500 traded around 4,510 on Monday. Demmert pointed to the index’s narrowing lead, with just seven megatech stocks driving much of this year’s gains. However, he predicted that one trigger could send stocks into a new bull market: money would rotate from the seven stocks to the rest of the market “that has been completely ignored.” “It’s really going to be a full-fledged bull market when the rest of the stocks in the market start to jump in,” he said, adding that this could happen sometime in the second half of the year. “With the Federal Reserve doing what it’s going to do in earnings season right in front of us here, you’re probably going to get an opportunity [the] super seven coming down and [bringing] indices down. That could be the end of the bear market and the beginning of this new business cycle bull market that we see as inflation of course starts to moderate more,” he said. Three Stocks to Buy In Case of a Short-Term Correction market, investors should have “some dry powder ready to go,” Demmert said. “We think this is a good time to have a mix of domestic and international stocks in a portfolio, as there are great values in foreign stocks, particularly in developed countries like Japan, France and Germany,” he said. He named three stocks to buy : French luxury house LVMH, which he said has an “excellent” management team and robust product lines Japanese industrial conglomerate Mitsui, in which Warren Buffett owns a stake US semiconductor company Advanced Micro Devices, to which which Demmert called a beneficiary of the secular AI technology boom.