Episode summary
Tech Is Rolling Over. Yields Are Falling. Why Jim Paulsen is Watching the Walmart Recession Signal
Excess Returns
· · 1 hr 3 min · Hosts: Justin Carbonneau, Jack Forehand · Guests: Jim Paulsen
Summary
Jim Paulsen argues that the market is becoming more vulnerable even without a recession call. He says complacency has built up after a long, easy run for investors, while financial conditions are now restrictive enough to pressure the economy and eventually stocks. He does not expect an outright bear market or recession, but he does think a sharp correction is plausible, especially in the high-flying “new era” or tech trade.
A central part of his case is that policy and market forces work with a lag. Paulsen says the big drop in yields, oil, and the dollar in 2025 helped lift the economy in early 2026, but the setup has now reversed as yields and oil have risen and the dollar has stopped weakening. He expects economic surprise data to soften and sees weaker support from seasonality when restrictive conditions lead into the November-to-April period.
He is also wary of tech leadership. Paulsen argues that new era spending has become extreme relative to GDP and that AI spending may be outpacing adoption and profits. He says the market’s narrow leadership, plus signals from retail, housing, employment, and Walmart’s relative strength, all point to slowing growth, lower inflation, lower yields, and eventually a policy easing cycle that could reset the bull market rather than end it.
Key takeaways
- Paulsen says financial conditions are now in the most restrictive quartile historically, which has usually meant weaker forward stock returns.
- He expects the lagged effect of higher yields, oil, and a firmer dollar to pressure economic surprises over the coming months.
- Paulsen says the November-to-April seasonal tailwind is much weaker when restrictive conditions are already in place.
- He argues that tech spending relative to GDP is stretched and that slower growth in AI-related investment could hit tech leadership.
- He sees Walmart outperforming as a recession-style signal that suggests stress in the consumer, jobs market, and Fed path.
Notable quotes
“I still think it could be a fairly nasty correction, particularly among new era stocks”
“it's been pretty easy to make money. We'll visit about that. And it might not even be that this thing, you know, finally takes a breather just because of irrational exuberance or anything as much as it's just complacency”
“right now on a three-month average basis that's about 6 and a half to seven out of eight are restrictive in the last year”
“The only thing that's supercharged is AI investment spending. Everything else is still fairly uh I think uh weak all in all”
“If if Walmart's doing better, if it's picking up market share, it probably says that more and more of the income distribution is becoming concerned about their fate economically”
How the episode opens
Jim, always nice to see you. Thank you for joining us again today.
You bet, Justin. Thanks for having me. Like we always do with you every month, we're going to work through many of the great charts and the information that you're putting out on Pulse and Perspectives, which is your Substack to try to help our viewers understand what you're paying attention to what is going on in the economy and the markets and at least and I think with some of these charts, you know, based on some historical past data, what the market has or how the market has reacted after some of these types of indicators have, you know, hit some of these levels, which we're going to talk through today.
So, you know, we're only I think about 2 weeks away from Halloween. So, hopefully these charts don't scare too many people. I don't think they should.
Should they?
Yeah. I'm not wearing a costume, anybody. If you think I am, I'm really not. — Yeah. This is with with AI, Jim, we could put we with AI, we could put the thumbnail. We could put the YouTube thumbnail the costume on you if we wanted to.
What would Jim Pollson's Halloween costume be? That'll be for — I don't know. a lot.
So, um, so yeah, and for our viewers that want to check out Jim Substack, it's Paulson perspectives.ssubstack.com. Please go there and support him. You can get on the free version, but he also has a great paid version, too.
And and Jim's kind enough to come on, you know, every every month and share some of these charts and things that he's looking at. So what we what where we think we'd like to start Jim and where we always start with you is before we get into the charts just kind of from hear from you about some of the bigger things that you're paying attention to in the market right now.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- tech correction risk
- bond yields
- financial conditions tightening
- walmart recession signal
- seasonality and market leadership
Companies and tickers mentioned
- WMT
- Walmart
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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