Transitory May Be Longer Than You Think, Says Leuthold’s Paulsen
(Bloomberg) -- Investors are pushing equities to record highs now that a report showed U.S. inflation is moderating. But strategist Jim Paulsen, who agrees that rising prices may be transitory, warns that folks shouldn’t get too comfortable.
“I think transitory is going to prove longer than what we expected, and even what the Fed expected,” Leuthold Weeden Capital Management’s chief investment strategist said in an interview on Bloomberg TV’s Surveillance show on Wednesday. “The result of that could be we are going to get pretty worried about inflation, I think, and that could be what brings finally a stock market correction at some point.”
He spoke before the Labor Department reported that prices paid by U.S. consumers climbed in July at a more moderate 0.5% from June and 5.4% from a year ago. Excluding the volatile food and energy components, the so-called core CPI rose 0.3% from the prior month and 4.3% from July 2020. The S&P 500 traded at an all-time high, and bonds held steady.
Still, Paulsen sees a problem in the “rollercoaster ride” the economy is on because the Covid-19 pandemic and resulting lockdowns arrested growth, and were followed by fiscal and monetary policies offered as remedies.
“When you push corporate America into a depressionary bust and tell them they have to survive a pandemic, and they cut back operations to the bone to do that, and then you give them a wartime boom within a year, there’s just no way they can catch up,” Paulsen said. “Ultimately, supply catches up, and this proves to be a really big inflation scare that we get through.”
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