Fear is a good thing for stocks: Strategist

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It’s been a week of milestones for the U.S. stock market. The S&P 500 index breached 3,000 for the first time, while the Dow Jones Industrial Average marched passed 27,000.

The market’s recent record rally is courtesy of the Federal Reserve, after Chairman Jerome Powell this week strongly signaled in his Capitol Hill testimony that the central bank is ready to cut interest rates later this month.

Powell cited unresolved trade tensions and worries about the global economy.

"It appears that uncertainties around trade tensions and concerns about the strength of the global economy continue to weigh on the U.S. economic outlook," Powell said.

Federal Reserve Chair Jerome Powell presents the monetary policy report to the Senate Banking Committee, July 11, 2019, on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)
Federal Reserve Chair Jerome Powell presents the monetary policy report to the Senate Banking Committee, July 11, 2019, on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)

Fearful marketplace

Jim Paulsen, Chief Investment Strategist at the Leuthold Group, told Yahoo Finance’s “The First Trade” that stocks have further to climb and that fear will be a catalyst.

“There’s been so much fear that we’re facing an imminent recession and an imminent bear market. There’s so much caution around,” says Paulsen.

“Look at the behavior of investors in this market, it’s gone up dramatically, it keeps going to new highs,” he said. “Yet the only thing they’ll buy is defensive stocks, low volatility, dividend aristocrats, gold. I think it’s a very fearful marketplace, which I think is a good thing for the future.”

Paulsen believes the Federal Reserve’s dovish stance should help eliminate any recession fears, and power stocks higher in the second half of the year.

“The combination of reasonable values, full policy support, and fear, I think is a powerful combination for further advances in the market,” Paulsen said.

Alexis Christoforous is co-anchor of Yahoo Finance’s “The First Trade.” Follow her on Twitter @AlexisTVNews.

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