Jim Paulsen on 2026 Market Outlook: Underweight Tech, Expect Easing

Market Recovery and Economic Signals

• 💡 The market's afternoon recovery was fueled by hopes of a government shutdown ending, though a stalemate persists.
• ⚠️ Weakening economic data, including flat ADP numbers, exploding layoffs, and cracking consumer confidence, is putting pressure on fiscal and monetary authorities.
• ✈️ Potential impacts on airlines ahead of the holiday travel season are also increasing pressure for a resolution.

Fed Policy and Market Indicators

• 📉 The relative price of cyclical sectors in the S&P 500 has fallen to its lowest levels in 35 years, indicating continued economic weakening since the government shutdown.
• 📊 Plummeting relative prices of material stocks suggest a strong correlation with declining CPI inflation.
• 💰 Market signals point to a continued weakening trend, with the Fed expected to continue easing well into 2026 as inflation subsides and growth becomes the primary concern.

Investor Positioning and Economic Outlook

• 📉 The economy is expected to slow, leading to broad easing from both monetary and fiscal authorities.
• 📈 Evidence of this easing includes lower short rates, lower bond yields, a lower dollar, and faster money growth.
• 🚀 Investors may see continued leadership in high beta stocks, small caps, micro caps, and international stocks as a result of these policy changes.