Leuthold’s Jim Paulsen: Economy could see sub-2% growth this year — but that could help stocks
Expect economic data and earnings reports to be softer for much of the year as growth in the economy slows to under 2 percent in 2019, Leuthold Group’s Jim Paulsen told CNBC Thursday.
“We’re going to have a fairly significant slowdown in the economy, in earnings, in attitudes and everything,” Paulsen said on “Power Lunch.” He later predicted that “we’re slowing to sub-2 percent growth this year.”
However, he believes this could be a bad-news-is-good-news scenario for stocks. “I think we’re going to survive it and move on higher this year,” adding “I still wonder if there’s opportunity maybe to commit some cash again on some panicky pull back days.”
In a Wednesday note to clients, he further explained by writing that “slower growth is the ticket to extending this recovery and its bull market.” He pointed out that “several previous expansions were given a second life by a ‘recovery refresh’ as an economic slowdown arrived just in time to temporarily pause overheat pressures.”
If those “overheat pressures,” such as price and wage pressures, were to stay at bay, the Federal Reserve could stay on the sidelines, and follow through on Fed Chairman Jerome Powell‘s promise earlier this month that central bankers “will be patient” on interest rates given continued muted inflation.
Rate concerns slammed stocks in the final three months of 2018, culminating in a sharp four-session losing streak that ended in a bear market for the S&P 500 on Christmas Eve. Since then, the index has gained about 12 percent.
“The challenge last year was to stay appropriately cautious in the face of chronically good news; and the challenge this year I think, or maybe what you’ll need for investment success, is to remain fairly bullish in the face of a stream of bad news,” Paulsen told CNBC Thursday.
The government shutdown, in its 27th day on Thursday, has not affected the economy much so far, Paulsen said. “[But] if it drags on here through quarter end, you know, I think it does start to have some meaningful impact not only directly but also sentiment wise.”
According to a White House official, the administration sees gross domestic product slowing about 0.1 percent each week the shutdown continues, a doubling of its original forecast.