Leuthold Group’s Jim Paulsen expects stocks to rally higher into record territory due to stronger economic and earnings growth.
However, he does warn that too much grown could risk hindering stocks from charging even higher.
“If we [economy] continue to grow, you’re going to see consumer prices, wages, commodity prices — cost in general — start to pressure business operations, household budgets and ultimately, the valuations of the stock market,” the firm’s chief investment strategist told CNBC.
He doesn’t have a timeline on when the economy could get squeezed, but he describes the scenario the market’s “primary risk.”
“That could happen quickly if economic growth spurts much more than anyone is thinking this year or it could drag out over a few years,” he said.
“Inflation is not a problem. So, until there’s some pressure, I think you’ve got to stay fairly bullishly tilted here,” he said. “Even though we’re going to have pullbacks, I think the economy is going to pick up. That may bring some pressures, but we certainly don’t have them yet,” he said.
Meanwhile, he doesn’t see the coronavirus fallout will extend beyond this quarter.
“It could get really serious,” Paulsen said. “But I think the right thing to do there is diversify. Everyone should be diversified. And beyond that, I don’t think you do much with it.”
For his part, President Donald Trump highlighted in his State of the Union speech to Congress on Tuesday the fact that the United States is in its 11th year of a record-setting economic expansion.
"I am thrilled to report to you tonight that our economy is the best it has ever been," Trump said.
As a candidate in 2016, Trump promised economic growth and job creation. His address to Congress focused on some indisputably positive outcomes in those areas, Reuters said.
The unemployment rate is at a 50-year low, for example, and wages are rising for lower-skilled jobs.
For those heavily invested in the stock market, the bull market's gains have been heady, although they mostly went to a small group of Americans at the top of the economy.