The S&P 500 is within half a percentage point away from reaching an all-time high and is poised for ending today’s trading session as the longest postwar bull market, but Jim Paulsen, chief investment strategist at Leuthold Group, sees various factors that could stymie the markets moving forward.
According to Paulsen, these factors are related to valuations, investor confidence, rising company profits, low competition from other investments and an economic recovery. Unfortunately, these factors are running on empty with no refilling station in sight.
“It’s not any one of those, per se, but it’s the fact that all of them are fairly used up,” Paulsen told CNBC. “After the longest bull markets in history, we used up a lot of the capacity to improve things that would help the stock market.”
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The unemployment rate is at a generational low–3.9%–but according to Paulsen, this spells trouble given historical data on unemployment rates registering below 4%. Paulsen cites job creation and consumer confidence as key issues that need to be addressed in order to sustain the current momentum.
“If you go back in post-war history the absolute best returns from the stock market come when you’re at the highest labor unemployment rate and the worst returns have come when you’re at the lowest labor unemployment,” said Paulsen.
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Last Friday, the Dow soared over 300 points as it got an immunity boost from Turkey contagion in the form of the United States and China resuming trade negotiations. Olive branches appear to have been extended between the two economic superpowers as the Chinese Commerce Ministry announced that a delegation will make its way to the U.S. later this month to talk trade.
The Chinese government did not specify the details surrounding the negotiations, but resuming talks is a step forward nonetheless as the China and the U.S. have been engaging in a back-and-forth trade spat that has had negative ramifications for markets around the globe.
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