Federal tax cuts and spending hikes are giving the U.S. economy an added boost, but David Kelly, chief global strategist at J.P. Morgan Asset Management, expects the impact to be short-lived. "We got all this sugar rush of fiscal stimulus right now," he told CNBC, adding, "But it's a sugar rush." Observing that "Fiscal policy is sort of at its maximum accelerated right now," he anticipates that an economic slowdown will be underway by the second half of 2019, and that U.S. stock prices will decline in concert.

"We got all this sugar rush of fiscal stimulus right now," says JPMorgan's David Kelly. "But it's a sugar rush."

Former Federal Reserve Board Chairman Ben Bernanke has voiced similar concerns. He predicts that the U.S. economy will "go off the cliff" by 2020. (For more, see also: Ben Bernanke: Economy Is Headed 'Off The Cliff'.)

^SPX Chart

^SPX data by YCharts

Kelly did not offer a forecast of how far U.S. stock prices are likely to fall, once that "sugar rush" wears off and the economy sputters. However, a growing chorus of market watchers and participants have been issuing dire warnings of bear market plunges ranging from 30% to 50%. Among these are emerging markets fund manager Mark Mobius, hedge fund manager Dan Niles, Guggenheim Partners Chief Investment Officer Scott Minerd, JPMorgan Chase & Co. Co-Chief Operating Officer Daniel Pinto, and former Office of Management and Budget (OMB) Director David Stockman.  (For more, see also: 'Daredevil' Stock Market Poised to Drop 40%: Stockman.)

'All About Earnings Growth'

Kelly told CNBC that equity investing is "all about future earnings growth." Seeing big one-shot profit increases from tax cuts, he said that "We really need to recognize that the earnings are being front-loaded here." That is, the spectacular year over year (YOY) earnings increases being recorded in 2018 will not be replicated in 2019, and thus are bound to produce disappointments among investors next year.

But Earnings Are Higher

On the other hand, the contrary view is that tax cuts have placed U.S. corporate earnings on a new, higher plateau for the foreseeable future. Without the tax cuts, YOY profit increases in 2018 definitely would have been much lower, as Kelly noted, but the YOY increases from 2018 to 2019 would not have been higher, in all probability. Moreover, fundamental analysts who subscribe to a discounted future earnings model would argue that the projected amount of earnings in each future year is the driver of stock valuations, rather than the projected earnings growth rates from year to year.

International vs. U.S. Stocks

"Right now the U.S. is leading the world" in earnings growth, Kelly said, adding the caveat that "When the rest of the world catches up, I expect international stocks to outperform U.S. stocks over the next few years." Meanwhile, investors are doing just the opposite, increasing their allocation to U.S. stocks by 16 percentage points, producing a 1% overweight allocation overall, Barron's reports, citing research by Bank of America.

Indeed, 64% of those surveyed, the most in 17 years, believe that the outlook for future profits in the U.S. is the best worldwide. By contrast, respondents indicated a net negative view of profit opportunities in all other regions.

'The Party's Still Going'

Speaking of the aging bull market, "It's late, but the party's still going," says Maneesh Deshpande, the head of equity derivatives strategy research and U.S. equity strategy at Barclays Capital, as quoted in another CNBC story. He called for the S&P 500 Index (SPX) to reach 2,900 this year, slightly over 4% from its value on June 14. The median projection in CNBC's recent poll of market strategists is 3,000, for nearly an 8% gain from current levels.

Steve Chiavarone, a portfolio manager at Federated Investors, is near the most bullish end of the spectrum, calling for 3,100, which would be more than 11% up from today, per a third CNBC report. "We think double-digit earnings growth certainly continues throughout the remainder of '18 and into '19," he said. The only big threat to the market, in his opinion, would be a spike in inflation, which he thinks is very unlikely, followed by a vigorous response by the Federal Reserve to hike interest rates.

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