Paulsen: Rally Has Legs

Wells Capital’s Jim Paulsen thinks the stock market’s recent climb has more to do with improving fundamentals than Federal Reserve policies — which means the rally could have some powerful legs.

“I think it’s going to be a multiyear recovery,” Paulsen told MarketWatch’s Howard Gold. “I think the great bulk of this move has been about fundamentals rather than the [Federal Reserve]. I think the economy has begun to reaccelerate.”

Among the signs Paulsen sees to back up his contention: He says that the unemployment rate has declined this year at the fastest rate since the recovery began, and that the housing market is starting to recover. He also says more and more people are re-entering the labor force, and he notes that consumer confidence is at a five-year high.

“In many ways, the U.S. recovery is gearing on more cylinders than ever,” he said recently, according to Gold. “Its character today is far more mature, more broadly based and therefore far less vulnerable to external shocks than at any time since the recession ended.”

Paulsen does expect a correction to occur as the market approaches its previous all-time highs, but doesn’t think it will derail a longer rally. He also is concerned that the Federal Reserve’s quantitative easing policies are overkill — “raising the specter of inflation, the ultimate rally killer,” Gold writes.