Excess Returns

Jim Paulsen joins us to explain why weakening economic momentum, tightening financial conditions and extreme AI enthusiasm could set the stage for a 10% to 20% stock market correction. We discuss labor market weakness, the growing divide between technology and the broader economy, fading tech leadership, market complacency, bond yields and the demographic forces that could keep US growth and inflation lower for years.
Jim also explains why he does not expect a recession or the end of the long-term bull market, but believes investors may need to reduce their concentration in AI and technology stocks as leadership quietly shifts toward the broader market.
Jim Paulsen on X
https://x.com/jimwpaulsen
Paulsen Perspectives
https://paulsenperspectives.substack.com/
Main topics covered
• Why Jim expects a 10% to 20% market correction without a recession
• What zero job creation, declining full-time employment and rising unemployment reveal about the labor market
• Why housing starts, real disposable income and GDP forecasts point to weaker economic growth
• How higher Treasury yields, oil prices, a stronger dollar and slower money growth have tightened financial conditions
• Why the economic damage from an oil shock often appears after oil prices peak
• The widening earnings and economic divide between AI investment and the rest of the economy
• What investor positioning, shrinking liquidity and low defensive exposure reveal about market complacency
• Why strong earnings momentum does not eliminate the risk of a market decline
• Evidence that technology, communication services and the Magnificent Seven are losing market leadership
• Why old economy sectors may outperform technology during the next stage of the bull market
• How weak labor force growth could push economic growth, inflation and Treasury yields lower
• Why demographics, immigration and productivity will shape the long-term US economic outlook
Timestamps
00:00 Why Jim Paulsen expects a 10% to 20% market correction
04:32 The labor market weakness investors may be overlooking
08:42 Housing, disposable income and GDP growth are deteriorating
13:03 How tighter financial conditions could slow the economy
17:09 Why oil shocks and the yield curve threaten earnings growth
21:41 Investor complacency and the disconnect between markets and Main Street
25:54 How today’s AI boom differs from the dot-com bubble
30:20 Defensive stocks reach an extreme last seen near major market tops
34:36 Record earnings expectations, momentum and extreme valuations
39:00 Technology, communication services and the Magnificent Seven lose momentum
43:00 The hidden market rotation from new era to old era stocks
47:01 Why Jim expects Treasury yields to fall below 3%
51:43 The demographic forces suppressing growth and inflation
55:45 America’s long-term growth challenge and what could change it

Katie Stockton of Fairlead Strategies joins Excess Returns to break down the current technical setup for the S&P 500, Nasdaq 100, mega-cap tech, market breadth, sector rotation, international stocks and gold. We discuss why short-term momentum has weakened, what would confirm a more serious breakdown, how investors can use technical analysis for risk management, and where breakouts are appearing outside the AI and semiconductor trade.
Katie Stockton on X
https://x.com/StocktonKatie
Fairlead Strategies
https://www.fairleadstrategies.com/
Fairlead Funds
https://www.fairleadfunds.com/
Main topics covered
Why the S&P 500 is still in a long-term uptrend but showing short-term momentum loss

How Katie defines overbought and oversold using the stochastic oscillator

Why the March monthly MACD sell signal became an unusual whipsaw

What the QQQs and Nasdaq 100 are saying about technology leadership

How investors can use stop losses, hedges and moving averages to manage risk

Why the market has held up despite underperformance in the Magnificent Seven

The difference between market breadth and market leadership

Why sector rotation is improving in healthcare, industrials, utilities, insurers and biotech

How sentiment indicators like the VIX and Fear and Greed Index fit into market timing

How the Fairlead Tactical Sector ETF uses trend following, sector rotation, Treasuries and gold

What the charts are saying about emerging markets, developed international stocks and the U.S.

Why gold has moved from a strong bull market into a more tactical trading environment

Timestamps
00:00 Intro
00:58 Why the S&P 500 is losing short-term momentum
05:04 How overbought conditions can reset without a major decline
08:39 Why whipsaws make confirmation so important
12:02 What the QQQs are saying about technology leadership
16:51 How to manage risk with stop losses and hedges
20:07 Why the market held up despite Mag Seven weakness
23:49 How market breadth differs from market leadership
28:14 What sentiment indicators are saying about investor positioning
32:58 Why the market is in a technical void
36:00 Sector rotation beyond technology and semiconductors
40:54 How the Fairlead Tactical Sector ETF manages drawdowns
46:05 What international stock charts are saying versus the U.S.
50:13 Why markets have been resilient despite geopolitical risk
52:05 What the chart of gold is telling investors now

Matt Zenz of Longview Research Partners joins Excess Returns to explain how evidence-based investing can help investors navigate AI excitement, market concentration, high valuations, IPO hype, factor investing and fixed income tax drag. We discuss why bubbles are hard to identify in real time, why diversification still matters, how valuation spreads shape expected returns, what AI capex does and does not tell us, and how investors can think about taxable bonds more efficiently.
Longview Research Partners
https://longviewresearchpartners.com/
Main topics covered
Why evidence-based investing matters during bubble-like markets

The emotional reality of holding risk assets through painful periods

How to think about market concentration without jumping straight to bubble calls

Why global diversification changes the mega-cap dominance story

What high market valuations mean for financial planning and expected returns

Why wide valuation spreads may create a better setup for value stocks

What factor research says about AI capex and corporate investment

How Longview builds a diversified factor strategy around discount rates

Why implementation, trading flexibility and scale matter in factor investing

The small cap premium debate, IPOs, fallen angels and survivorship bias

Why AI may increase data mining risk in quantitative investing

How fixed income tax drag can quietly reduce after-tax returns

Timestamps
00:00 Why painful markets create future return premiums
04:00 Market concentration, AI winners and the value of diversification
09:40 How high valuations should influence financial planning
13:12 Why wide valuation spreads matter for value investors
14:01 What factor research says about AI capex
16:20 How Longview's EBI strategy looks for higher discount rates
18:58 Why Longview starts with the market and then tilts
21:45 Comparing 1999, 2008 and today through expected returns
24:33 Intangible assets, price-to-book and the limits of accounting adjustments
28:32 SpaceX, IPOs and how indexes handle new mega-cap companies
33:21 Why implementation and trading flexibility can affect returns
36:17 Passive flows, price elasticity and market price discovery
39:35 The small cap premium, IPOs and fallen angels
42:21 Are today's small caps lower quality than history?
46:01 Why AI may not uncover the next great factor premium
48:04 Why fixed income may be the most inefficient part of taxable portfolios
51:29 How LVIG tries to convert bond income into deferred capital appreciation
52:50 The after-tax return opportunity from tax deferral
54:58 Which investors may benefit most from tax-efficient fixed income
56:26 Where to learn more about Matt Zenz and Longview

Jeff Klingelhofer of Aristotle Pacific joins Excess Returns to break down the fragile circular relationship between AI capital spending, the stock market, the high-end consumer and the broader economy. We discuss fixed income markets, Fed policy, inflation, private credit, the national debt, business cycle risk and how investors should think about bonds after the end of the zero-rate era.
Aristotle Pacific
https://www.aristotlepacific.com/
Main topics covered
Why AI CapEx has become one of the biggest drivers of the US economy and stock market

How the high-end consumer, asset prices and AI spending have created a circular market setup

Why today’s fixed income market is very different from the zero-rate era

How bonds can serve as income, ballast and portfolio protection in the current environment

Why the Fed may care more about inflation expectations than markets expect

The Fed’s overlooked third mandate and what moderate long-term interest rates mean

How Kevin Warsh could change the Fed’s approach to forward guidance, inflation and the balance sheet

Why the business cycle is not dead, even if Fed intervention has lengthened it

What investors should understand about the national debt, higher rates and inflation

Why private credit is useful but not automatically better than public credit

How flexible fixed income investing can find opportunities across credit, securitized markets and capital structures

Why sentiment, not just fundamentals, drives market prices

Timestamps
00:00 AI CapEx, the stock market and the fragile economic loop
04:03 Why fixed income markets look different after zero rates
08:45 Does the Fed still have investors’ backs?
13:43 Are AI companies using dangerous forms of financing?
18:54 Why starting yields change the stock bond hedge
23:42 The Fed’s overlooked third mandate
29:03 Why inflation expectation stability may drive Fed policy
33:11 How Kevin Warsh may change the Fed regime
38:46 What a smaller Fed balance sheet could mean for asset prices
43:24 The national debt, higher rates and inflation
50:25 Why fixed income should be managed across silos
55:08 The one lesson for the average investor

Meb Faber, co-founder and CIO of Cambria Investment Management, joins Excess Returns to discuss his new book, Investing in America: The Rise of a 250 Year Bull Market.
We explore why the United States became one of the greatest long-term compounding stories in market history, what investors can learn from 250 years of booms and busts, and why Meb can be optimistic about America while still cautious on today’s expensive market-cap-weighted S&P 500.
Investing in America: The Rise of a 250 Year Bull Market
https://amzn.to/4f1H5Aw
Meb Faber on X
https://x.com/MebFaber
Main topics covered
Why America can be viewed as the ultimate venture capital success story

How joint stock companies, risk-taking and ownership helped shape the U.S. economy

Why studying 250 years of market history changes how investors think about volatility

The long-term case for stocks and why the time horizon matters so much

Why bear markets are a natural part of capitalism and long-term compounding

How U.S. market dominance happened and why it was not preordained

Why expensive valuations, low dividend yields and new supply may matter today

The role of dividends, buybacks, shareholder yield and reinvestment in long-term returns

Why diversification across global stocks, bonds and real assets can help investors stay invested

What gold, REITs and foreign stocks teach us about starting points and narratives

Why early investing, child investment accounts and compounding can change investor behavior

How creative destruction reshapes sectors, companies and the market leaders of each era

Why Meb remains optimistic about America while still cautious on parts of the U.S. market

Timestamps
00:00 Why America was not guaranteed to become the market winner
01:15 Meb Faber on writing Investing in America
02:25 America as the ultimate venture capital success story
06:22 How a culture of ownership helped the U.S. stock market compound
09:19 Why studying 250 years of market history matters
12:00 Why ownership is the core investing lesson
15:14 Bear markets, recessions and the danger of recent history
18:16 Why U.S. stocks beat the rest of the world by so much
22:20 Lessons from financial history that surprised Meb
27:05 Why stocks can lose for long periods and bonds can win
30:00 Why investors need to get used to being in a drawdown
33:24 Dividends, buybacks and the importance of reinvestment
37:27 Why gold and REITs beat the S&P 500 after 2000
40:55 How balanced portfolios survive different market regimes
43:03 The power of starting early and letting compounding work
48:16 Why global diversification matters outside the U.S.
50:40 Creative destruction, sector change and market leadership
55:20 Why Meb is still optimistic about investing in America
59:33 Where to find the book, Cambria and Meb online