Incoming Wave of Consumer Spending Could Push Markets Even Higher


James Paulsen believes the wave of consumer spending once the economy reopens can push markets even higher.

Paulsen is the chief investment strategist at The Leuthold Group. Last week, stocks continued to rise to record highs as millions are vaccinated daily against the novel coronavirus that has swept the world over the past year. There have been skeptics of the market's rally, claiming that valuations are too high and that a correction is imminent. Paulsen described a minor correction as "healthy" for the bull market.

He cites another catalyst that could continue to drive the rally, consumer spending. Over the past year, Americans have been forced to stay home and spend less money in the process. Vaccinations and additional fiscal stimulus could result in a massive spending spree that would drive markets even higher.

The massive recovery in equity markets was driven by tech and growth stocks in 2020. With economic reopenings on the horizon, Paulsen expects a shift to value and small-cap stocks that could drive the rally higher.

Historically, improving consumer sentiment has been positively correlated with a market rally. In the past, when consumer confidence increases, the overall market outperformed the S&P 500 by 3 percent led by value and small-cap stocks.

"Any additional revival of Main Street sentiment should be a shot in the arm for broader stock market plays," he added.

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Economics, Finance and Investing