Has a longtime Minnesota bull turned bearish? Jim Paulsen, Chief investment strategist at Wells Capital Management, came out with a peculiar research note earlier in the week. Paulsen highlighted some similarities with an S&P 500 (^GSPC) chart from our current bull market with one that shows a similarity to the 1982 bull market that culminated int the Black Monday crash in 1987:
the contemporary bull market has been following the 1982 bull market fairly closely. As recently as last year-end, both bulls were up about 175% from their respective bear market lows! The important anniversary passed just a couple days ago was the 1274th trading day of both bull markets – the day on 8/25/1987 when the 1982 bull market reached a notable peak. On that day, the S&P 500 Index peaked for the year at 336.77. Moreover, we are now just 37 trading days from another important anniversary in financial history – 10/19/1987 when the S&P 500 Index suffered its biggest single day collapse ever!
As intriguing as the comparison sounds, and with the Dow (^DJI) and S&P 500 hitting new all-time highs today, Breakout viewers will remember these comparisons with past market moves have usually been non-predictive. But fun market talk, sure.
Paulsen will be the first say he doesn’t see a big, ugly 20% move coming. “I’m not anticipating that [1987 type crash] at all,” he says, but he does point out the genesis of both bull markets as very similar - born out of extremely tough economic times in 1982 and 2009.
“I would suggest that history won’t repeat, i don’t think we’ll have a big collapse… but sometime in the next several months, good news on the economy might become bad news for the market like it did in 1987.” Paulsen says a 10% move wouldn’t surprise him in the least.
Despite his call for a modest correction, Paulsen still feels strongly that investors should be positioned aggressively in cyclicals (XLY), with this morning’s “Goldilocks” payrolls number keeping the market happy, and leaving the Fed little option but to continue its low rate policy and slow taper.
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