Five Weak Years Ahead for Stocks, Noted Strategist Says

Here’s a bearish take for you: The stock market’s returns will be weak for the next five years, because consumer sentiment is now very strong.

That’s the prediction of Jim Paulsen, chief investment strategist at the Leuthold Group, a noted research house and asset manager. And he bases it on what he calls his Main Street Meter, which mixes the University of Michigan’s consumer confidence survey (now high) and the US Labor Department’s core unemployment rate (low). His gauge is at its third-highest level since the 1970s.

“When this ratio is high, Main Street has probably been good for a while,” he wrote in a note to clients. In other words, we are at or near a peak.

Paulsen, who joined Leuthold last year after 20 years at Wells Fargo, has long fostered a contrarian reputation, as when he correctly forecasted a bull market ahead during the depths of the Great Recession.

With this pessimistic call, Paulsen pointed out that he is not being precise about when the market will head south and by how much. He did say that small- and mid-cap stocks should do the best during the coming blah time, as opposed to the large stocks that have fared so well in the current bull market.