Episode summary
It's Been Dead for 18 Months | Jim Paulsen on the Hidden Market Leadership Change
Excess Returns
· · 1 hr · Hosts: Jack Forehand, Justin Carbonneau · Guests: Jim Paulsen
Summary
Jim Paulsen argues that the market is undergoing a major leadership transition rather than a simple boom-or-bust ending for mega-cap tech. He says technology stocks have been the market performers for 18 months, but their relative strength has faded while small caps, cyclicals, value, emerging markets, and animal-spirits names have started to improve. In his view, that shift has been helped by easier policy conditions: Fed easing, a softer dollar, a steeper yield curve, and better money supply trends. He thinks the best outcome is not a collapse in tech, but a re-rating where tech underperforms while the rest of the market catches up.
Key takeaways
- Paulsen says tech has led for 18 months, but the bigger story is a leadership rotation toward small caps, cyclicals, value, and emerging markets.
- He argues broader market participation has tended to improve when policy has eased, and says further policy support may be needed to sustain it.
- Paulsen thinks the job market is weaker than headline GDP suggests, and that weak labor data will force the Fed and policymakers to respond.
- He says recent productivity gains may be overstated because they largely reflect job cuts rather than a true AI-driven productivity boom.
- Paulsen sees rising uncertainty as a bullish condition for stocks, because investors tend to underown risk assets when volatility is high.
Notable quotes
“I think there's a chance a good chance I've been arguing this for a while that we could liquidate out this new era sector by reviving all the rest sectors”
“I think the economy is a lot weaker than people anticipate or think right now”
How the episode opens
Technology stocks right now have been market performers for 18 months. 18 months. And I don't know if that's widely appreciated yet.
A lot of people say when we have this type of outsized movement in one sector, whether it was energy stocks in the 70s, you know, or.com stocks in the '9s or new era stocks today, that we that only ends one way. They fall they fall out of bed and the whole thing comes crashing down. That's how it is.
I think there's a chance a good chance I've been arguing this for a while that we could liquidate out this new era sector by reviving all the rest sectors that haven't done anything in this bold and we could actually have uh revaluation of new era go on while the overall market still goes up. Some of the uh best times for the stock market uh historically have been when volatility is at its at its highest levels. Every time the economy slows down, we get a big productivity boost.
But is that a real rise in productivity or is it just the rise you get in every recession we ever have? Jim, here we are. Another another get together, meeting of the minds.
Um, it's early February. Um, lots of sort of moving pieces in the market, in the economy, and these conversations, you know, with you help us and our audience sort of try to get at what you're paying attention to, what investors should be paying attention to, what's changing in the markets. And so, you know, where we always start with you and where we like to start with you is, um, uh, you know, what are you paying attention to?
What are you, how are you informing? I mean, you have a bunch of subscribers on Substack.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- market leadership shift
- tech underperformance
- ai and productivity
- labor market stress
- economic policy uncertainty
Watch the episode
Watch “It's Been Dead for 18 Months | Jim Paulsen on the Hidden Market Leadership Change” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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