Paulsen: It’s Still Early in the Recovery and the Rally

Wells Capital Management’s James Paulsen says that while many are envisioning a below-average economic recovery, the rebound has thus far been very normal, if not better than average, and he sees a chance of the S&P 500 climbing to 1,350 by year-end.

“The look of this thing so far at least is very normal, if not even a little better than normal,” Paulsen tells Yahoo! TechTicker. He says that the speed with which unemployment claims have fallen, leading indicators have risen, and GDP has rebounded all point to a recovery that will end up being “very normal … at worst”.

Paulsen says his research has found that stimulus funding usually takes six months to hit Wall Street and a full year to hit Main Street. He says that using the Lehman Brothers September 2008 collapse as a starting point, that’s just what we’ve seen this time around — a boost for Wall Street in March ’09, and a boost for Main Street starting in the fall of 2009. He thinks the stimulus’ full impact has yet to be felt.

As for the stock market, Paulsen says there will be bumps in the road, but he expects continued gains.

He likes the wall of worry that remains in place, and the huge amount of cash still on the sidelines. He currently likes cyclical and economy-sensitive sectors, including materials, technology, financials, and emerging markets. He says stock valuations are average at worst given current inflation rates, and adds that future inflation (or lack thereof) will have a big impact on where the market heads.

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