Expect stocks to plunge at least 10% once investors price in the risk of recession, one strategist says

• Stocks could plunge 10% or more once markets price in the risk of recession, one strategist says.
• The Fed will likely tank the economy if it pursues 2% inflation, Key Advisors' Eddie Ghabour says.

Stocks may plunge by 10% or more if the Federal Reserve forges ahead with its inflation fight and throttles the economy, one strategist has warned.

"You normally will see a double-digit drop ... when the market finally prices in the recession," Eddie Ghabour, CEO of Key Advisors Wealth Management, told Yahoo Finance on Tuesday. A 10% decline would erase a big chunk of the S&P 500's 17% advance this year.

Inflation has slowed from a 40-year high of over 9% last summer to around 3% in June and July. However, it won't be easy for the Fed to curb price growth to its 2% target, Ghabour said.

"The only way you can get there is by demand destruction," he said. "I don't see how you can get that rate of change to drop that much by next year without a recession."

The Key Advisors cofounder outlined why he's worried about the economic outlook. He pointed to record amounts of credit-card debt, and the resumption of student-loan repayments from October, as two reasons to be concerned about American consumers.

He also flagged the recent rise in oil prices as a warning sign that inflation might accelerate, raising the prospect of greater volatility in stock and bond markets, he said. If mounting costs and debt repayments force consumers to cut back on spending, that could hamper corporate earnings and rattle markets in the fourth quarter of this year, Ghabour said.

"Real estate is going to show some cracks as well," he added, noting a surge in mortgage costs has deterred homeowners who've locked in cheaper rates from selling, which has pushed house prices higher.

The Fed's inflation war has centered on hiking interest rates from nearly zero to north of 5% since last spring. Higher rates encourage saving over spending and raise borrowing costs, which can alleviate upward pressure on prices. However, they can also crimp demand, erode corporate profits, pull down asset prices, and drag the economy into a recession.

Ghabour is far from the only expert to fear the Fed's rate hikes may choke growth. The likes of Jeremy Grantham and David Rosenberg have warned that asset prices are in a bubble and markets and the economy could crater.