10% to 15% correction will hit stocks, warns longtime bull Jim Paulsen

The latest market pullback could be a harbinger of a more serious slowdown.

Jim Paulsen of the Leuthold Group predicts that a 10-15% pullback will rock investors next year due to high valuations and less accommodative policies from the Federal Reserve.

“We’re overdue for a correction, and we’re going to get one,” the company’s chief investment strategist told CNBC’s “Trading Nation” Tuesday. “I would try to diversify away from the S&P 500, which I think could suffer the consequences.”

Paulsen, a long-term bull, is not as concerned about the economic and business impact of the Covid omicron variant.

“It’s more likely to turn out to be less serious than we fear at the moment. It’s not like it’s a whole new thing… We have a population that is much more vaccinated,” he said. -he declares. “The chances of this really having a big stopping effect like we had earlier are pretty low.”

But due to the overall risk environment, Paulsen advises investors to start reducing their exposure to large-cap stocks in the S&P 500, including Big Tech.

“I would spend more time repositioning my portfolio – perhaps taking advantage of the quality of the technology and the growth here over the past few months. Get out of that a bit,” Paulsen said.

He expects a major market pullback to be temporary due to continued strong growth in GDP and earnings. Its S&P 500 target for next year is 5,500, which implies a 9.5% gain from Tuesday’s close.

“If inflation does eventually moderate and we overtake Covid more significantly, then we could really see a wave of optimism maybe in the latter part of next year,” he added.

Paulsen expects small and mid-cap stocks, cyclicals and international markets to emerge as the biggest winners.

“Look at the carnage in small caps and cyclicals,” he said. “If you were looking to buy this, I would take advantage of the fear that reigns now to maybe do it.”

On Tuesday, the S&P 500 fell 1.9% to close at 4,567.00. It is now at 4% of its record highs.


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