Cyclicals, value, and international stocks' response

In this episode, we’re joined again by Jim Paulsen to break down the key themes shaping markets and the economy heading into 2026. Jim explains why policymakers may be fighting the wrong battle, why real sustainable growth has quietly collapsed over the past 20 years, and how shifts in policy, demographics, productivity, inflation, and investor psychology all tie together. We also walk through Jim’s latest charts from Paulsen Perspectives and explore what they mean for stocks, sectors, interest rates, the dollar, and leadership in the year ahead.

Topics covered in this episode:
• The state of inflation and why CPI and PPI may be sending a very different message
• The 20-year collapse in real sustainable GDP growth
• Why job creation, labor force growth, and productivity have all structurally weakened
• The rise in unemployment duration and what it signals about lost “animal spirits”
• How demographics, immigration policy, and cultural shifts are shaping growth
• Productivity puzzles: innovation vs. distraction in a tech-driven economy
• Why the real economic risk may be deflation, not inflation
• How monetary policy, the yield curve, the dollar, and fiscal policy have remained contractionary
• Tariffs as a hidden tax and their real impact on inflation
• How an easing cycle could reshape market leadership in 2026
• Jim’s Total Policy Stimulus Index and what it reveals about small caps, cyclicals, value, and foreign stocks
• The difference between today’s tech cycle and the dot-com bubble
• What a broadening market might look like if policy finally turns supportive
• How international equities could respond to a weaker dollar
• Why tech may underperform without collapsing
• Jim’s expectations for S&P 500 returns in 2026 and the potential for a more balanced leadership environment

Timestamps:
00:00 Market setup and inflation overview
02:00 Reviewing recent corrections and sector broadening
04:00 Bond yields, easing expectations, and fear-based asset leadership
06:00 Tech’s relative performance beginning to fade
07:00 GDP growth collapse over two decades
09:00 Structural slowdown in job creation
10:30 Labor force growth and aging demographics
12:00 The doubling of unemployment duration
14:00 Population trends, immigration, and slowing productivity
17:00 The rise of de-risking and falling monetary velocity
19:00 Trade deficits, globalization, and policy contraction
22:00 Why inflation risk may be overstated
26:00 CPI/PPI data versus the inflation narrative
29:00 Money supply, real rates, and the longest yield curve inversion
31:00 The strong dollar as a contractionary force
34:00 International stock performance and currency impact
35:00 Tax burden relative to slower growth
37:00 Tariffs as taxes and their real economic effect
39:00 What would it take to restore growth and optimism?
42:00 The Total Policy Stimulus Index explained
47:00 Policy’s impact on equal-weight, small caps, cyclicals, and value
52:00 How foreign stocks respond to policy and the dollar
54:00 Tech valuations today vs. the dot-com era
55:00 Fed response differences between now and 2000
57:00 Why today’s tech cycle is structurally different
59:00 What 2026 might look like for the S&P 500
01:01:00 Why price targets are inherently unreliable
01:01:45 Closing thoughts and sign-off