Jim Paulsen talks his 2026 market outlook, advises to underweight tech

Economic Conditions - The equity markets are experiencing a recovery based on hopes that a government shutdown may end soon, although the situation remains at a stalemate [1] - Economic indicators such as ADP numbers have shown flat growth over the last three months, and there has been a significant increase in layoffs, indicating a halt in the job market [2][3] - The relative price performance of cyclical sectors in the S&P 500 has fallen to its lowest levels in 35 years since the government shutdown, suggesting continued weakening economic conditions [5] Inflation and Market Signals - The relative price of material stocks has plummeted since the shutdown, indicating a strong correlation with CPI inflation, and inflation-sensitive stock prices have also declined [6] - Market signals suggest a continued weakening trend since the shutdown, with expectations that the Federal Reserve will continue easing policies well into 2026 as inflation subsides [7] Investment Strategies - The current economic slowdown is expected to prompt broad easing from both monetary and fiscal authorities, which is already reflected in lower short rates, bond yields, and a weaker dollar [9] - There are signs of better performance in high beta stocks, small caps, micro caps, and international stocks, indicating potential leadership in these areas due to policy changes [10][11]