Tags: Paulsen | unemployment | claims | stocks

Wells Capital's Paulsen: Jobless Claims Data Might Signal 'Additional Turbulence' for Stocks

By    |   Wednesday, 18 March 2015 07:00 AM

Unemployment claims have stood below 300,000 per week for much of the time since last summer — they totaled 289,000 in the week ended March 7 — and that could mean trouble for stocks, says James Paulsen, chief investment strategist at Wells Capital Management.
 
"This does not necessarily imply the contemporary bull market is over. Indeed, we continue to believe the bull market may extend for the next several years," he writes in a commentary provided to Newsmax Finance.
 
"However, it is suggesting the stock market may be in for some additional near-term turbulence." The S&P 500 index has tripled over the past six years. More recently, the CBOE Volatility Index (VIX) has soared 22 percent in the last two weeks.
 
So why does the 300,000-claim level signal trouble? "We think it represents an inflection point in recoveries which forces the stock market to adjust," Paulsen notes.
 
"Unemployment claims typically do not fall much below 300K in any recovery. In recent decades, this level has come to represent the 'frictional' low for layoffs. Even in the best of times, almost 300K layoffs continue in a dynamic economy," he adds.
 
"Similar to reaching full employment, a 300K claims level signifies resource pressures, which alters the interpretation of economic growth."
 
Meanwhile, with the 30-year Treasury yield having hit a record low in January and the S&P 500 index just 2 percent below its record high, many experts are worried about froth in financial markets.
 
Andy Redleaf, CEO of hedge and mutual fund manager Whitebox Advisors, is one of them. "I think it is a truly scary time," he writes in an internal memo obtained by CNBC.
 
The Federal Reserve's massive easing program that has pushed its balance sheet to $4.5 trillion could come back to bite the financial system, he predicts.
 
"We do not know exactly where all the credit creation of this cycle has gone. Certainly money sits idly as excess reserves, but just as certainly money that would not exist but for unconventional monetary policy has distorted prices and resource allocation," Redleaf notes.
 
The current period resembles the run-up to the 2008 financial crisis, he maintains.

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Unemployment claims have stood below 300,000 per week for much of the time since last summer — they totaled 289,000 in the week ended March 7 — and that could mean trouble for stocks, says James Paulsen, chief investment strategist at Wells Capital Management.
Paulsen, unemployment, claims, stocks
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2015-00-18
Wednesday, 18 March 2015 07:00 AM
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