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Coronavirus hot spots shouldn't wreck the recovery, market bull Jim Paulsen says

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'We're in a new bull market,' Leuthold's Jim Paulsen says

Market bull Jim Paulsen believes coronavirus hot spots across the country won't wreck the recovery.

According to the Leuthold Group's chief investment strategist, new cases won't widely impact the economic reopenings.

"At the same time those are having hot spots, New York is being brought back online," he told CNBC's "Trading Nation" on Monday. "The economic reports are going to continue to improve, and hot spots are going to affect not whether the economy grows or not, but whether it grows faster or slower."

Despite his optimism, Paulsen warns the coronavirus risk isn't going away anytime soon. He contends investors will have to cope with flare-ups until there's a vaccine.

"When we get headlines, there will be reaction to it. It could create pullbacks or corrections along the way," Paulsen said.  

But Paulsen isn't backing away from his forecast, which includes the possibility stocks could hit fresh record highs this year.

He lists three things boding well for markets right now: Widespread investor angst, the Federal Reserve's unprecedented policy push to ease the virus fallout and a recession that's likely already over.

'We're in a new expansion'

'However, he speculates they won't push the economy to a full stop because it's too costly.

"It's going to be really difficult to shut down the economy again. I just don't even know if people will put up with it after regaining a job," he said. "We're headed north. I think we're in a new expansion, and I think we're in a new bull market."

To navigate the environment, he's taking a barbell approach to investing with an emphasis on growth and cyclical groups.

"I would continue to own some of the popular, what I call 'new era stocks.' Those stocks that have secular long-term excess growth often tied to things other than the economy," he said. "Look at having an overweight in those areas and maintain it even if the valuations are little high. I think they're going to provide good protection in periods of pullback."

On the other side, he has exposure to economically sensitive groups, particularly small caps and international stocks.

"These type of plays will lead the market if the global economy continues to improve," Paulsen said. "But it's going to be a volatile ride with a lot of those names."

On Monday, the S&P 500 closed at 3,117.86, about 9% below its all-time high.

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Why market bull Jim Paulsen believes a new expansion is gripping the economy