That’s the conclusion of a model constructed by Jim Paulsen, chief investment strategist at the Leuthold Group, who said the sharp rise in consumer confidence compared to the generational low in unemployment has happened before and almost always signified a lull or worse in the market.
“Because confidence is high today and unemployment is low (i.e., the capacity of this recovery is near a peak), the risk-return profile of the stock market has worsened considerably, and investors should prepare for far less satisfying results in the next five years,” Paulsen said in a note to clients.
The timing of the analysis seems apt, as multiple economic signs point to above-trend growth ahead while stock prices have languished.
However, Paulsen said his “Main Street Meter” isn’t met to be a market timing device but rather a look over the longer term on what can be expected from stocks now that the economy may have turned a corner.
Amid the current backdrop, investors may want to reconsider their choices.
Where large-cap stocks and the value/growth play have led the bull market since it began in 2009, Paulsen said the future points to small- and mid-cap companies and momentum stocks.
Trader Georgi Bozhidarov