Here’s why Wall Street and investors aren’t giddy enough, says top strategist

Here’s why Wall Street and investors aren’t giddy enough, says top strategist

While the footing has been a bit less steady for stocks lately, March is still set to deliver solid gains for most of Wall Street, with the Dow Jones Industrial Average

up 7% and the S&P 500

up 4%. The Nasdaq Composite

is lagging with a 1% drop as the shift toward cyclical stocks continues.

The big bull calls for this market remain scarce though, and that may be down to some disbelief, said Jim Paulsen, chief investment strategist at money management and research firm The Leuthold Group.

“I just can’t imagine that at that point, when, in some sense in this country, when we declare victory over COVID that we’re not going to feel a whole lot more giddy than we do right now sitting in my basement.”

— Jim Paulsen, The Leuthold Group

“There’s a lot of thought that people are too giddy, there’s too much optimism, sentiment is too strong, but I just can’t help but feel it’s going to be a lot stronger,” said Paulsen, in an interview on Monday with MarketWatch.

In our call of the day, he brushes away the naysayers, and looks ahead to the coming autumn, when almost everyone in the U.S. who wants a COVID-19 vaccine will get one, and we’ve got reopenings, re-employment and people “flush with stimulus” cash.

“I just can’t imagine that at that point, when, in some sense in this country, when we declare victory over COVID that we’re not going to feel a whole lot more giddy than we do right now sitting in my basement,” including growth better than 8% this year, Paulsen said. “So I think that sentiment is going to run through Main Street and Wall Street.”

Fundamentals go along with that, as he expects U.S. growth of better than 8% this year, among the strongest of the postwar era. Earnings are also expected to surge, with Wall Street forecasting a rebound for S&P 500 earnings to $175 this year — Paulsen sees $200 as possible.

“And if it does, that means we’re selling on less than 20 times earnings right now on the S&P 500, and probably broader markets are even better valuation,” he said. What he thinks is happening is that sentiment just can’t keep up with the better-and-better scenario unfolding.

“There’s not another period I can think of in postwar history where we effectively took the world economy to a Depression-era bust, and then within about a year…a postwar boom,” he said. And while rising bond yields — something to watch for Tuesday — hover over investors, Paulsen sees a “stepwise” move up to 2%.

For investors, he suggests continuing to steer toward economically sensitive areas, via cyclical, small cap and international stocks. He owns technology, but is underweight as sees some underperformance ahead. “But I don’t think it’s going to crater. I think it’s going to participate in this bull.”

Investors shouldn’t abandon the sector, because it has been such a domineering force throughout the globe. And down the road, he said tech companies, because they permeate so many sectors, may start to be categorized differently.


What to avoid? Paulsen said he would be wary of healthcare, utilities, real-estate investment trusts, cash, bonds, gold. And yes he does see a correction likely, a big risk for this year.

“I think it might come later this year but I wouldn’t be shocked, starting right now,” he said. “And that’s the biggest risk this year and I don’t think that’s a cycle ender, it certainly is painful. And I think we’re going to get one of those.”

Yields are creeping up, Archegos lingers

Tech stocks are struggling to get a foothold in a holiday-shortened week, with futures for the Nasdaq-100

down. Those for the S&P 500

and Dow

are flat to higher. But the yield on the 10-year U.S. Treasury

has hit a 14-year high of 1.78%. The Case-Shiller home price index and a gauge of consumer confidence are the data ahead.

Score another for cryptocurrencies. U.S. customers of online payment provider PayPal

can now purchase items with bitcoin

and other digital assets.

Videogames retailer GameStop

has appointed Elliot Wilke, former executive at e-commerce giant Amazon, as chief growth officer.

European stocks and banks

are getting a breather after Monday’s selloff, led by Credit Suisse
That is as Archegos Capital Management, the U.S. fund believed to be behind the forced sale of more than $20 billion in stocks, says “all plans are being discussed.” Wall Street banks were reportedly summoned by U.S. regulators to discuss the risks and fallout.

Read: The complex bets behind ‘unprecedented’ Archegos-linked $30 billion margin call

The COVID-19 vaccines from drug company Pfizer

and biotech Moderna

stopped infections and illness in 90% of fully vaccinated people. Meanwhile, Canada has suspended the shots from drug company AstraZeneca

for adults under 55.

The New York City Police Department is hunting the suspect of a vicious assault on an elderly Asian-American woman.

Random reads

A seven-year-old builds and launches her own rocket during lockdown.

“Satan’s Shoes” complete with a drop of human blood, sell out in a minute. Footwear maker Nike sues.

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