Citi analyst Kristen Bitterly said Monday that a soft landing was still possible but that the stock market could see further downside if a recession begins to look inevitable.
"Where we are right now is not really pricing in the full potential downside if we see a true prolonged economic slowdown," Citi Global Wealth Management's head of North America investments told CNBC.
Bitterly argued that the main question relates to whether the current bear market is leading into a recession or not. She noted that non-recessionary bear markets are typically shorter and less steep than ones that lead into an economic downturn.
The Citi Global Wealth analyst contended that "we've already done the work" in this bear market if the economy can avoid a recession. However, an economic contraction would likely mean further downside for equity markets.
As to the odds of a recession, Bitterly put the chances at "roughly 50/50." However, she gave a slight edge to the more optimistic view that the economy would skirt a downturn.
"You're going to see slowing growth but not tip over into a recession," she said.
In response, Bitterly advised investors to keep a "very diversified, very balanced" portfolio. She noted that her firm had moved away from high-growth stocks earlier in the year and targeted less speculative investments.
Specifically, she pointed to the S&P dividend aristocrats -- established firms with solid profitability and strong dividend yields.
The ProShares S&P 500 Dividend Aristocrats ETF ( NOBL ) has fallen nearly 12% so far this year. However, that still outpaces the S&P 500 as a whole, which has fallen about 19%.
In terms of individual companies, this category includes names like Walmart ( WMT ), Target ( TGT ), Procter & Gamble ( PG ), PepsiCo ( PEP ), McDonald's ( MCD ), Lowe's ( LOW ), Johnson & Johnson ( JNJ ), IBM ( IBM ), Coca-Cola ( KO ), Chevron ( CVX ) and Caterpillar ( CAT ).
For more on this segment of the market, see why Seeking Alpha contributor The Sunday Investor advises a more selective approach to the dividend aristocrats .
For further details see:
Stock market not pricing in recession, soft landing still possible - Citi analyst