“We are in a bear market.
We are not in a bubble,” says David Kostin, the head of global research at Wells Fargo Securities.
“It is a very dangerous time.
If it is not corrected by the Fed, we will be in a long, hard recession.”
While the market is up by over 10% over the past two months, that is the second-highest monthly gain since the Great Depression, and still less than half of the post-war boom of 1987, when the Dow reached 1,000,000.
The Dow has doubled in size in less than 20 years, and the last time the index hit new heights was in the mid-1990s, at the height of the dotcom boom.
Kostanis forecasts that the Dow will continue to rise over the next few years.
“The next couple of years, the trend is not going to be that much different,” he says.
“The market is going to go up, and you can bet on it.
If we don’t do something, the markets are going to move up.
We’re going to see that bubble burst, but the next bubble will probably be much smaller.”
As the Dow has soared, the dollar has gained against other currencies.
US stocks have gained by almost 40% against the yen, and that has driven down the value of foreign currencies, especially gold.
Kostin expects the global economy to expand by more than 3% this year.
But the market may have to slow down.
The US economy has been in a prolonged recession since the mid-’90s, when many experts blamed high unemployment and rising inflation on a collapse in productivity.
“When you have a recession, you have to take a lot of money off the table,” says Kostar.
“You have to make cuts.
You have to shrink.”
But Kosten says that with a new government in place, the US could avoid the recession.
Kustin says the recovery is strong enough that the Fed could raise interest rates in December or January.
The Fed is expected to hike interest rates for the first time in a quarter-century next month, when it meets.
“I’m not sure the Fed is going for a massive rate hike.
I’m not seeing that,” says Paul Ashworth, chief investment strategist at UBS Investment Management.
“I think the Fed would have to raise rates, maybe by a quarter point or a bit less.
I think that will happen at the end of the year.”
But Ashworth says the Fed has more room to move in its monetary policy.
He says if it raises rates, it will be because it is worried about overheating and inflation.
“It will be the biggest rate hike in the history of the Fed,” he explains.
“That would be unprecedented.”
Read more on the US stock market:The US stock markets are up by about 10% this month, but that is still less a gain than the first three months of the next decade.
Kustin predicts the market will continue rising for the next couple years.