Leuthold Group chief investment strategist Jim Paulsen (pictured) says markets are being driven by “fear on steriods” leading to undervalued stocks.
“In the past where you had high levels of fear, that was typically a very good time to buy the stock market,” the veteran money manager told CNBC’s Trading Nation.
He said the unprecedented $2trn support package from the White House, near-zero interest rates from the US Federal Reserve, followed by a huge asset-buying program to keep the economy moving during the coronavirus pandemic, has inflated stocks.
“The Federal Reserve and the Treasury are scared, as well. So, they’re devoting unprecedented, massive policy support for risk assets,” said Paulsen. “The combination of massive policy support and high levels of fear tell me that asset prices are probably undervalued.”
However, Paulsen, who began his asset management career in 1983, is a long-time bull on the stock markets. He feels that the economy does not needs to fully reopen for stocks to bounce back. He said, “Should even a partial restart of the economy take place, the magnitude and diversity of current economic policies could be far more powerful in boosting economic growth and the stock market than appreciated.”
He compared the current crisis with the 2008-2009 financial crisis. According to Paulsen, “After the ’08 [financial] crisis, there are still parts of the economy we don’t have back. We don’t have housing back anywhere close to what it was,” He added, “The unemployment rate took forever to get back down to where it was in 2007. Yet that didn’t stop the stock market from rising.”
However, on Wednesday Federal Reserve chair, Jerome Powell told Congress the US was experiencing an economic hit “without modern precedent,” that could permanently damage the economy if government did not provide sufficient financial support to prevent a wave of bankruptcies and prolonged joblessness.
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