Tech Spending Has a Cash Problem | Jim Paulsen on the Two Signals That Could Trigger a Correction

**Justin** (0:00)
Tech has been driving the market higher, but how long can a market driven by one sector keep going? In our latest episode of the Jim Paulsen show, we take a deep dive into the data to look at what is driving the market and if it is sustainable. We have included this episode in the Excess Returns feed, but if you want to keep receiving new episodes, you can subscribe to the Jim Paulsen show on all major podcast platforms using the links in this episode description. Thank you for listening. We hope you enjoy the show.

**Jim Paulsen** (0:19)
For technology or innovation to be quote unquote successful, it has to at some point. I think it will here eventually, but it has to at some point be not just benefiting the sector that came up with it. You're also seeing another stripe changing. We're having unprofitable stocks, unprofitable tech stocks in particular, leading the tech world, if you will, overall. So, Mag-7 is not only getting beat by small little no-name companies, it's also getting beat by companies without any profits. Although I think we're going to avoid a bear market this year, I do think we will.
I'm getting more and more concerned about a meaningful pullback here in the stock market.

**Justin** (1:04)
Jim, welcome back. Thanks for jumping on with us today.

**Jim Paulsen** (1:07)
It's great to be here, Justin. Thanks.

**Justin** (1:10)
We always like to do these talks with you monthly, where we talk about a whole host of things and related to the market, the economy, policy, and what you're seeing, I think, in the markets with a lot of the datasets and things that you're looking at, trying to help our audience and investors get a read as best we can as to where things maybe are headed and some of the more, I think, interesting things that you're paying attention to. A lot of these or all of these charts actually are pulled from Paulsen Perspectives, your substack newsletter, so we're really grateful and our audience is appreciative that some of the stuff that you're putting out to subscribers you are sharing with us, which is really great. It's always very important to get your perspective to help us understand what we're looking at when we look at these things.
I'm pretty sure I can say this, we are not going to be talking about SpaceX or AI in this conversation or will we?

**Jim Paulsen** (2:09)
There will be a comment to AI here or there.

**Justin** (2:13)
Yeah. That's pretty slow. It seems like that's what's dominating the headlines and the media. But from your perspective, what are your thoughts in terms of where we are with the economy and have there been any changes since we sat down with you last month?

**Jim Paulsen** (2:34)
Yeah. I'd say there has been a little bit.
I still suspect that economic growth is going to weaken here in the summer months into the fall from where people expectations are. But it's been better than I have thought here of late with some recent reports. We'll see what Friday's payroll brings, but there's a pretty low hurdle on that as we're heading into that. But I think the underlying economy still remains fairly tepid. We're probably growing more at 2% at best in real GDP overall and employment is still quite weak.
And I think a lot of the good feel from this is taken from what profits are doing, which have been spectacular. But as I'll talk about in a minute, that's really concentrated profit success. It's not really broad based.
So I think the key to me continues to be, you know, does the economy slow down a little bit? And if it does, I think we're going to move quickly from worried about inflation to worried about growth. And those will be very significant aspects of what could prove to be the second half. The other thing I'm just worried about a little bit is, although I think we're going to avoid a bear market this year, I do think we will. I'm getting more and more concerned about a meaningful pullback here in the US stock market, mainly because the bifurcation of this market movement lately has been so extreme between just new era securities and all the rest. Basically, all the rest have done nothing. And you got this one small part that's going to the moon.
To your point, Justin, with SpaceX, that's literally going to the moon with AI, I guess. But I'm a little taken back by how extreme the move has been, how it's really based a lot on emotion around another new technology, AI. And I just feel like there's enough things that are creeping up that are putting out warning signals for me of getting some pullback, particularly if amongst all that, we also get to slow down on economic activity. So I'm nervous about calling for a pullback. And I wouldn't necessarily, I don't think we're going to bear, I wouldn't pull out of stocks, but I would move up to underweighted positions in new era and overweighted positions in old era stocks. That's kind of where I'm at. And I'm nervous about it because calling for a peak in this market, I've never been good at that from the short term perspective. It could go on for a while on the upside, I don't know. But I'm seeing enough that's got me a little concerned enough to at least tilt in that direction at this point. I do expect a full pullback, but I also think that by the end of the year, we'll be back pretty close to where the highs have been recently again. In other words, I think it's going to be sharp and nasty and then have a good rally maybe in the fourth quarter.