It's not a bull or a bear market, it's a 'bunny,' says Jim Paulsen

S&P to end year roughly flat: Pro
S&P to end year roughly flat: Pro   

Before bottoming on Feb. 11, it looked like stocks could be heading into a bear market. The subsequent rebound, though, suggests the bull is back on.

In fact, the truth may be neither. The current trend looks more like a "bunny market," according to Jim Paulsen, the widely followed chief market strategist at Wells Capital Management.

What's a bunny market? It's certainly not like the Easter Bunny, who goes around handing out treats, but instead more like a rabbit bopping up and down in place.

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"Unlike an enthusiastic bull or a scary bear, a bunny market hops about a bit but really doesn't go anywhere, and bunnies have often dominated the stock market during the latter stages of past economic recoveries," Paulsen said in a report this week for clients.

Indeed, the market has hopped quite a bit over the past 15 months or so, but the S&P 500 benchmark is pretty much unchanged from where it sat in early November 2014, shortly after the Fed ended the third round of quantitative easing.

Bunny Market.
Shironosov | Getty Images
Bunny Market.

Investors have had to digest quite but since then. The global economy has slowed thanks to a China scare and a slide in energy prices, triggering lots of ups and downs with little conviction in either direction.

Expect more of the same in the future, and adjust accordingly, Paulsen said.

"We continue to expect another flat U.S. stock market this year," he said. "In a bunny market, investor strategies can no longer simply be bullish or bearish. Several additional approaches should receive consideration."

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Navigating this particular bunny market — others have occurred on numerous other occasions, most recently in 1993-94 — will require a mix of strategies.

Among Paulsen's recommendations are a shift away from U.S. large caps and toward small- and mid-caps and commodities and other "real assets." By sectors, he sees benefits in industrials, materials and capital goods.

Such strategies will help investors through a scenario in which Paulsen believes both "a sustaining bear market" and "an enduring solid bull market" are both "unlikely."