Episode summary
Tech Is Priced for a Boom. 86% of the Economy Grew 0.7%. What If AI Slows?
Excess Returns
· · 1 hr 7 min · Hosts: Justin Carbonneau, Jack Forehand · Guests: Jim Paulsen
Summary
Jim Paulsen argues that the headline strength in GDP is masking a sharply split economy. He says about 14% of real GDP, concentrated in information processing equipment, software, and intellectual property, is growing at roughly 15%, while the other 86% of the economy is growing at only about 0.7% and looks recession-like. That gap, he says, makes the average macro numbers misleading and leaves the Fed with one blunt tool for two very different economies.
He also argues that the stock market’s AI leadership may be more fragile than investors think. Tech and communication services have become roughly half of the S&P 500, but he thinks complacency has replaced panic as the main risk: investors are overweight the winners, keep buying dips, and may not notice that tech relative performance has already stalled. He warns the new-era parts of the market could enter a bear market even if the broader index only sees a milder correction.
Paulsen says the old-economy sectors may increasingly act as a buffer if growth slows and rates ease. He points to weak consumer confidence, soft employment growth, and tighter financial conditions as signs that the broad economy could fade further, and he thinks that would likely favor older sectors over AI-heavy leadership.
Key takeaways
- Jim Paulsen says 86% of the economy is growing at only about 0.7%, while the AI-linked 14% is growing near 15%, so the average GDP print hides a major split.
- He thinks the Fed risks making a double mistake by using demand-side rate hikes to address a supply-side inflation problem.
- Paulsen believes tech’s risk is not just valuation but complacency, since investors have been able to buy every dip for years.
- He argues the new-era parts of the market could suffer a bear market even if the S&P 500 only corrects mildly, because old-era sectors may cushion the index.
- He expects old-economy stocks to benefit if yields fall and policy turns more accommodative, especially if growth slows further.
Notable quotes
“The vast majority of the economy is what would call what we'd all say I think is like recessionary like growth, but it's overwhelmed by this one small part”
How the episode opens
All right, Jim, another month down. Thank you very much for coming back with us. It's always a pleasure to see you and it's good to talk to you. — You bet, Jess. It's always always fun for me as well. So, thanks for having me.
You're welcome. I feel like we have a lot to kind of work through today. I mean, there's a lot going on in the market and depending on your perspective, it can maybe either be a little good or bad depending on where you fall.
But we've had the elections. Uh we've had I think a decent jobs number, some higher than expected maybe inflation as that than some people were expecting or maybe the market was expecting, some verbiage from the Fed as to what they're thinking about going forward. And then we have sort of what's going on in the underlying stock market, which is sort of a sell-off in some of these AI names.
And I think investors trying to figure out uh where the growth is going to come from as they look out over the horizon. So, there's a bunch of things to talk with you today about. A lot of what we're going to discuss is pulled from your Substack, Paul and Perspectives.
Please go check out Jim's work, his research, and all these great charts on his Substack. You can either Google it or find it on Substack, Paulson.substack.com. And what we always like to do with you, Jim, is before we get in and start working through those charts, just what are some of the bigger things you're paying attention to today in the market right now?
Well, I guess I'll get into this a little bit later, but I the two big things for me, Justin, right now, I think biggest thing I think it's going to dictate kind of how this plays out.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai earnings risk
- gdp split between investment and consumption
- fed rates and economic divergence
- tech vs s&p 500 relative performance
- productivity growth comparison
Companies and tickers mentioned
- Paulsen Perspectives
Watch the episode
Watch “Tech Is Priced for a Boom. 86% of the Economy Grew 0.7%. What If AI Slows?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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