Wealth manager Dan Veru believes US stocks could endure a prolonged decline before embarking on a “powerful rally” by the end of the year. A broad rally in US equities in July raised hopes of a sustained recovery in equity markets. Speaking on CNBC’s Squawk Box Europe ahead of Monday’s US trading session, Veru attributed July’s strong showing to better-than-expected earnings and “acceptable” third-quarter guidance. Veru, chief investment officer at Palisade Capital Management, said he expects the recent bear market rally to continue as more companies report. All three major US moving averages closed higher on Wednesday, sparking a two-day losing streak. The Dow Jones Industrial Average rose more than 400 points, while the tech-heavy Nasdaq Composite gained about 2.5% and the broad-based S&P 500 hit its highest level since June. ‘Heavy’ year-end rally Veru believes the stock market remains macro-driven and could see more volatility before year-end. “As fall approaches, I believe stocks could be vulnerable to another round of selling. The decline is typically a period of stock weakness, but I worry that the full force of higher interest rates and quantitative tightening by the Federal Reserve could create a new round of selling,” Veru said. He pointed out that the full impact of inflationary pressures and the string of rate hikes this year will be felt in this quarter, leading to “greater uncertainty” for third-quarter earnings to weaken stocks I’m not sure if US stocks will make a new low but much of the recent gains could be lost before Nov 2 [congressional] elections,” he added. Still, Veru forecasts a “strong year-end rally” for stocks after the fall sell-off Commodity prices should start falling. By the end of the year, a new bull market should take us well into 2023 and beyond,” he said. Sectors to Own Against this backdrop, how should investors position themselves? Veru believes “it’s time” to add energy stocks given the recent slump Energy is by far the best-performing sector in the S&P 500 this year, up more than 40% year-to-date, according to FactSet data buys when recession looms – BofA gives 40% upside These stocks are poised for a comeback when inflation peaks, says Jefferies Has the market bottomed That’s what Wall Street says after US stocks rebounded in July last month – consumer discretionary, technology and industrials underperformed amid falling crude oil prices and rising recession fears. With the US dollar “probably topping” in the near term, it bodes well for industrials and commodities stocks, particularly industrials and commodities stocks , he believes the outlook for the industrials sector is “pretty good” while valuations are also more attractive appear. He is also a fan of the healthcare sector for its “defensive qualities”. The sector is down 6.3% this year, outperforming the S&P 500, which has lost nearly 14% of its market cap this year. Palisade Capital Management has more than $5 billion in assets under management as of the end of 2021.