Where some analysts fear the stock market's run-up is losing steam, Jim Paulsen, chief investment strategist at The Leuthold Group, found four reasons why stocks are set to tear higher.
The S&P 500's rally cooled through July after erasing year-to-date gains and entering a volatile earnings season. Several experts point to rising jobless claims and weakened consumer spending as a sign of continued virus damage and a prolonged downturn. Others fear exiting now would lead to missed profits.
Investors have rotated from stocks to safe havens in recent weeks, leaving plenty of room for new stock-market inflows. Growing holdings in gold and cash assets also point to an overall bearishness, as do flows into bonds and out of stocks. Historically, such moves away from stocks eventually drive prices higher when bullishness takes hold, Paulsen said.
The historic stimulus and easing used to pad against the coronavirus' damage"improve the odds, dramatically, that a new economic recovery has begun," Paulsen said, adding he expects the new bull market to be in"its early innings."The stock market retook its early 2020 highs, but economic activity remains well below pre-pandemic levels. That disparity should work in investors' favor as areas of the US reopen and spending revitalizes business activity, Paulsen said.
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