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Jerome Powell’s speech at Jackson Hole signaled a reset of the bull market clock, says Wall Street vet Jim Paulsen.
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The Fed’s intent to cut interest rates offers new support for stocks, Paulsen said.
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“I think it’s hard for a recession to find something to bite on, a vulnerability to bring us down,” Paulsen said.
Jerome Powell’s dovish speech at Jackson Hole on Friday reset the clock for the stock market’s bull rally and opened the door for more gains.
Wall Street veteran Jim Paulse said in a CNBC interview on Friday that “a brand new bull market” in stocks is apparent after the Federal Reserve confirmed its intent to cut interest rates.
“They opened up a lot more positive forces for the stock market that just haven’t been there,” Paulsen, who writes the Paulsen Perspectives newsletter after retiring from a 40-year career on Wall Street in 2022, said.
He added: “This is the only bull market in post-war history where the Fed has been tight throughout its entire existence. Normally, the Fed is easing before the bull even starts. So in some way, I think the Fed in doing this, is taking us back to the start of the bull.”
The positive forces unlocked by the Fed include falling interest rates and bond yields and accelerating monetary growth, all of which have been absent for the current bull market that began in October 2022.
Those forces, combined with positive real GDP growth and continued disinflation, should improve the mood among business owners and consumers alike.
“If you put all these together, something we haven’t had at all yet, we’re going to get a rise in private sector confidence. Consumer and business confidence, I think, is going to start to lift as well, much like the feel of a brand new bull market,” Paulsen said, adding that these conditions typically precede a broad-based rally in stocks.
A rising stock market into 2025 coincides with Paulsen’s bullish view on the economy, as he doesn’t see a recession happening anytime soon.
Paulsen pointed to strong consumer and business balance sheets and $6 trillion in money market funds as reasons for his optimism.
“I think it’s hard for a recession to find something to bite on, a vulnerability to bring us down,” Paulsen said. “And then when pessimism is still very elevated, that is, confidence is very low, it tells me that people have been pretty conservative.”
Going forward, Paulsen said it doesn’t matter whether the Fed cuts interest rates by 25 or 50 basis points at its September FOMC meeting; all that matters is that officials will be cutting interest rates.
“It isn’t just about the Fed doing 25 or 50, it’s the intention to ease monetary policy that’s opening up a brand new degree of support for stocks that I think is going to persist well into next year,” Paulsen concluded.
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