LIVE MARKETS-Bull approaching four-year mark with more room to run: Paulsen

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BULL APPROACHING FOUR-YEAR MARK WITH MORE ROOM TO RUN: PAULSEN

With a 43-month-old U.S. bull market looking to celebrate its fourth birthday this fall, retired economist Jim Paulsen suggests in his latest blog that it has plenty of capacity to continue.

The economist and market watcher, who most recently worked as chief investment strategist at Leuthold Group, notes that the S&P 500 .SPX has risen almost 100% during the current bull market with an average annualized total return of 23.2%.

While both the bull's leaders - communications services .SPLRCL and technology .SPLRCT - have nearly doubled in price so far, Paulsen points out that seven of the benchmark index's 11 major sectors have brought better than 60% total returns since the bull market's inception.

Looking at valuations going back to 1990, he said that with a trailing price/earnings multiple of 26, the multiple was only higher near the dotcom top in the 2000s - excluding times when earnings were cyclically depressed. And he points to S&P EPS and profit margins at, or near, records and S&P sales/share rising 50% during the last five years, along with profit margin improvements from 10.5% to 13.5% and an almost doubling of EPS.

"S&P 500 company fundamentals have seldom if ever been better – but can they be maintained or improved upon from here?" he asks, adding that his "guess is there is still considerable capacity left in the contemporary bull market."

One element of the economist's optimism comes from market breadth. Since the current bull has had narrow leadership, Paulsen sees this leaving plenty of reasonably priced stocks and sectors.

For example, he says, there are "significantly attractive possibilities among both mid- and small-cap stocks." And both mid- and small-cap PE multiples are "dramatically below their previous bull market peak levels" and "do not appear overpriced relative to where they were valued since about 2010."

Meanwhile, cyclical S&P 500 sectors and large-cap value stocks also offer potential, with both currently priced far below the peaks reached at the top of the 2020-21 bull market and not "significantly extended relative to their respective valuation ranges since 2010."

Also, he points out that with only a small segment of S&P 500 companies seeing significant EPS expansion since 2022, this means that "much of the economy still has considerable profit potential."

"Normally, as a bull ages, profits across the economy peak relative to trendline levels. But currently, most companies could still enjoy a significant period of enhanced profit growth," Paulsen said.

He notes that the bull market has continued despite consumer confidence hitting a record low and points out that "household debt/income ratio is currently as low as it first was 30 years ago."

So he suggests that "if the U.S. can finally boost optimism and confidence about the future (maybe a little more aggressive policy accommodation could help that?), there is plenty of 'untapped' balance sheet potential to make any improvement in animal spirits felt in a positive way."

(Sinéad Carew)

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