During a recent interview on CNBC, Leuthold Group’s chief investment strategist said, “I think a good gut check to sentiment, like a 15 percent correction, might be just the ticket to extend this bull market.”
Jim Paulsen said a correction is necessary to reflect rising interest rates, peaking earnings, and slower economic growth, adding, “What we need is a lower valuation, I think, to sustain a different environment if this recovery is going to continue.” He suggests that it might be a good time for investors to up their defensive investing, citing target sectors such as utilities, consumer staples, and real estate investment trusts as good bets.
According to Paulsen, a significant market turn in favor of defensive stocks over cyclicals could suggest economic trouble ahead. “I think it suggests,” he said, “that economic growth is going to slow more than Wall Street really is ready for.”
The article cites historical data suggesting that if the yield curve inverts in December 2018, “the current bull market would peak in September 2019 and the next U.S. recession would start in February 2020:”
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