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Tags: jim paulsen | unemployment | bull | market | stocks

Jim Paulsen: Low Unemployment Could Stop Charging Bull Market

By    |   Tuesday, 21 August 2018 11:12 AM EDT

Investment guru Jim Paulsen warns that low unemployment could actually halt the seemingly endless charging bull-run stock market.

Wednesday would mark the longest bull market ever for the S&P 500 index, stretching 3,453 days since hitting a bottom in March 2009, CNBC reported.

However, Paulsen told CNBC that five factors which have fueled this record surge (valuations, investor confidence, rising company profits, low competition from other investments and an economic recovery) may have hit their limits.

"It's not any one of those, per se, but it's the fact that all of them are fairly used up," the chief investment strategist at Leuthold Group recently 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," he said.

The unemployment rate is now at 3.9 percent, but reached as low as 3.8 percent in May in its lowest reading since 2000. Any reading below 4 percent is historically a negative for the stock market, he said.

"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," he said.

"It's very bleak returns when you're at full employment," said Paulsen. "Part of the reason is, how do you improve job creation, confidence and other things?"

Meanwhile, the bull market itself is the topic of much debate, Bloomberg explains.

According to a loose consensus, bull markets are rallies that go beyond 20 percent and never interrupted by a 20 percent fall. In many corners of Wall Street, that means the S&P 500 rally that began in March 2009 is about to surpass all that went before.

Here’s the issue: these definitions aren’t chiseled in stone. They’re not laws of nature -- it’s not even totally clear where they come from. The 20 percent threshold strikes people as arbitrary, spurious, an invention. Pundits disagree on everything from the role of psychology in defining market eras to how strict you should be about the parameters for past ones.

Several objections pertain to measurement. One is how to date the rally this one supposedly supplants -- the dot-com bubble. Traditionally, statisticians have placed the start of the tech rally in October 1990, the bottom of a slide in the S&P 500 that got very close to 20 percent but not all the way. If you refuse to call that 19.92 percent drop a 20 percent drop, the advance gets longer, and today’s would need a thousand more days to exceed it.

It’s been nine years, five months and 12 days since the S&P 500 hit a 13-year low on March 9, 2009, the date considered by many to be the start of the equity recovery. Not so fast, say skeptics. According to them, a bull market begins not when the stocks reach a bottom, but after an interval of recovery -- like when the market breaches its previous high. Viewed like this, the bull market started on Feb. 19, 2013, when the S&P surpassed an October 2007 high.

“I will not be popping the champagne for the bull market on Aug. 22,” said Jeffrey Hirsch, editor of the Stock Trader’s Almanac. “Everyone’s hung up on the record. It’s more nuanced than that.”

To be sure, Reuters explains that while one group is widely recognized for determining U.S. economic cycles - the National Bureau of Economic Research - no such body is uniformly accepted for defining bull and bear markets.

Bank of America Merrill Lynch, research firm CFRA and S&P Dow Jones Indices are among the Wall Street organizations that will recognize the current bull market becoming the longest on Wednesday.

On that date, in their view, the bull market that began on March 9, 2009 will surpass the run from 1990-2000 in terms of calendar days.

But another group of market watchers - including experts at Yardeni Research, Bespoke Investment Group and SunTrust Advisory Services - observe a bull market from 1987-2000 as the longest. By that standard, the S&P 500 needs to last almost three more years to set the record for longevity.

Both groups generally find that bull markets end upon a 20 percent decline from a peak. In this case, but a sticking point is a 19.9 percent decline on a closing basis from July to October of 1990.

Investors eyeing this Wednesday as the record-setting date call that decline a bear market, which interrupted the 1987-2000 bull run, while others do not.

CFRA classified the 1990 decline as a bear market because the S&P 500 fell 20 percent when rounded and because it surrendered more than 50 percent of what was gained in the prior bull market, chief investment strategist Sam Stovall said in a recent note.

“However, we respect the opinions of those who don’t agree,” Stovall said.

Material from Bloomberg, Reuters and the Associated Press were used in this report.

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Unemployment is under 4% and that's a bad thing for stocks, Leuthold's Paulsen says
jim paulsen, unemployment, bull, market, stocks
Tuesday, 21 August 2018 11:12 AM
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