×

‘Goldilocks’ environment for stocks, but a 'big important catalyst' could change that: Paulsen

  • The stock market should continue to climb higher despite the lack of progress in Washington, strategist Jim Paulsen said.
  • He thinks as long as we have the type of global and U.S. Goldilocks sort of economy going, stocks will continue to do well.
  • One "big, important catalyst" is the U.S. dollar.

The stock market should continue to climb higher despite the lack of progress on any of Trump's policies in Washington, strategist Jim Paulsen told CNBC on Wednesday.

For one, the market has no expectations for anything getting done, he said.

However, "the real salve for Washington's wound, if you will, is that as long as we have the type of global and U.S. Goldilocks sort of economy going, they can screw up pretty badly and I think stocks will continue to do well," the chief investment strategist at The Leuthold Group said in an interview with "Power Lunch."

Paulsen pointed to the fact that the U.S. has a fully employed economy that's still producing a solid rate of job creation. Plus, there are rising real wages for workers and rising profitability, all without wage pressures and inflation challenging price-earnings multiples, he said.

If that momentum changes, stocks will start to struggle — no matter what Washington does, he cautioned.

One "big, important catalyst" is the dollar, which is on the cusp of a 30-month trading range low, he explained.

"If it breaks southward, that will put juice back into commodity prices, particularly oil. And if that comes at the same time that wages break through 3 percent, you could start to see angst among bond vigilantes, angst about the Fed's slow and steady process," Paulsen said.

For now, he believes inflation will come with better economic growth.

The biggest question is what bond yield will "shut down" economic growth and the stock market, he said. For Paulsen, it's a 10-year Treasury yield that's north of 3 percent.

Disclaimer