The S&P 500 index has erased the 10 percent decline it suffered between Sept. 19 and Oct. 15 and then some, hitting a new record high this week.
But another correction is coming, says James Paulsen, chief investment strategist for Wells Capital Management.
"While I'm still a longer-term bull, I think we've got several more years and the market's probably going to be quite a bit higher at some point than it is today, I just think that nearer-term we are headed for a little more turbulence again," he tells
CNBC.
Indeed a fall to 1,800 by the S&P 500 represents "a very likely prospect as we head into 2015," Paulsen argues.
And why are stocks vulnerable?
First, the market's price-earnings (P/E) ratio has risen 50 percent, he explains. The S&P 500's trailing P/E ratio totaled 19.12 last Friday, up from 18.85 a year earlier, according to Birinyi Associates.
Second, investor sentiment is at its highest level of the last five years and "thereby subject to some unrest if something odd happens," Paulsen notes.
And finally, the Federal Reserve is expected to increase interest rates next year. Most economist think the first move will come around mid-year.
"I personally like an overweight in international markets right now. They've all underperformed the United States market in the last couple years. You've got policy officials in Europe and Japan and even the emerging world working hard to prop up those markets where the policy officials here are moving away," he adds.
"I would move away from the U.S., I'd bet on a weaker dollar, and I think you're going to find out that the Federal Reserve, once they do begin raising rates, are going to have to raise them more aggressively than people currently think."
David Rosenberg, chief strategist for Gluskin Sheff, agrees that the five-year bull market is intact.
"Corrections are part and parcel of the investment process, and it is imperative to realize that what is most important for building wealth is not timing the market but time in the market," he writes in the
Financial Times.
"This does not mean some cash should not be raised and risk taken off the table, but one has to stay engaged, because it is likely that what we saw unfold of late is only a near-term reversal in what is still an overall uptrend."