Jim Paulsen, Wells Capital Management's chief investment strategist, says the current bull run in the stock market will charge nearly 10 percent higher before plunging back to earth.
The stock market's recent record run is based on more than investors' enthusiasm around President Donald Trump's proposed policies potentially buoying equities, CNBC explained.
Investors are seeing a steady stream of positive economic data and earnings momentum, CNBC explained. And the likelihood that the Federal Reserve will raise interest rates this year is somewhat of a confidence builder for equity investors from an economic perspective, he said.
Paulsen foresees the S&P 500 as poised to roar to 2,600, then plunge to the 2,200 ballpark as rates rise and finally recover a bit to close out 2017 at 2,350.
"I think this is going to continue on to higher levels and yields are going to move higher ... before we get a significant correction, possibly from higher levels," Paulsen told CNBC's "Trading Nation."
He sees the U.S. 10-year Treasury yield rising to 3.5 percent, at which point higher interest rates will "bite" the stock market, sending it lower.
Paulsen is watching the correlation between stocks and bonds. The two show a positive correlation right now, but since the late 1990s have turned negative during three time periods: in late 1999, late 2006 and early 2007, and in 2014.
"Every time that correlation went negative, the stock market then struggled. So I'm looking for that correlation, which is currently positive; once that turns negative again, then I think I'm going to turn more negative on the stock market overall," he said.
Another respected economic guru tends to agree with Paulsen's gloomy forecast.
Newsmax Finance Insider John Mauldin explains that the Trump White House better get the right tax strategy enacted sooner rather than later.
"Because if we don’t come up with a tax proposal that can get through Congress this year, then we’re looking at 2018; and do you really think the stock market is going to levitate, waiting until 2018 for a tax proposal that’s not even on the table yet?" Mauldin wrote.
"Congress needs to focus clearly and figure out what they’re going to do—and not do things that would make the U.S. and global economic situation even worse," he wrote.
"As investors and portfolio managers, we need to be paying attention to what Congress is saying and doing and figure out how their actions are going to affect the economy and our portfolios," he wrote.
"The right policies and programs could be very good for the markets. The wrong ones?You’d want to get out of the way of that train," he wrote.
(Newsmax wire services contributed to this report).
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