‘Full Bull’ Market Hinges on Fed Rate Cuts, Argues Veteran Strategist

NEW YORK – Following a market rebound on Monday that reversed last week’s losses, a veteran market strategist says the current bull run has far more potential than many investors realize, with a “full bull” scenario waiting to be unleashed by one key factor: Federal Reserve rate cuts.

Jim Paulsen of Paulsen Perspectives, a 40-year Wall Street strategist, argues in a new analysis that several traditional pillars of support for stocks have yet to be activated. He believes the Fed’s monetary policy has been overly restrictive, a view he says is supported by last week’s weaker-than-expected jobs data.

“The current bull run got its start when the Fed was tightening and has matured almost completely under that contractionary policy,” Paulsen wrote in a recent Substack post. He highlights that throughout this rally, the federal funds rate has remained high, the yield curve has stayed near inversion, and real money supply growth has been subpar.

These conditions typically signal economic caution. A yield curve inversion—when short-term debt yields more than long-term debt—often points to investor pessimism about future growth. Meanwhile, sluggish money supply can indicate a struggling economy with less borrowing and consumer spending.

Paulsen attributes these headwinds, along with a strong dollar and weak consumer confidence, to the Fed’s “chronic contractionary monetary policy.” A strong dollar can make U.S. goods more expensive and less competitive overseas.

However, he sees immense upside if the central bank shifts its stance.

“Should the Fed finally sustain a cycle of cutting the funds rate, it would bring much broader support to the stock market than widely perceived,” Paulsen states. He predicts that such a move would spark healthier monetary growth, weaken the dollar to the benefit of U.S. companies, lower bond yields and mortgage rates, and ultimately boost consumer confidence.

To illustrate his point, Paulsen shared historical data showing the powerful impact of these economic drivers. Since 1960, the S&P 500’s average annualized price gain has been 10.5 percentage points greater during months when the Fed was cutting rates compared to when it was hiking them.

The most significant untapped force, according to Paulsen, is consumer sentiment. He notes the “watershed destruction of U.S. confidence” has been a major deterrent to market returns. Historically, when consumer confidence has risen, the S&P 500 has delivered an average annualized gain of 15.8%, compared to just 1.5% during months of declining confidence.

With consumer confidence currently near historic lows, Paulsen believes it is more likely to rise over the next year. “If it does,” he says, “stock investors could enjoy a powerfully positive force they have rarely had the chance to savor yet during this bull run.”

This optimistic view is not universally shared. Analysts at Bank of America recently cautioned that markets might be “conflating recession with stagflation” and suggested the Fed could keep interest rates elevated until 2026.

As the debate continues, U.S. stocks opened mostly higher on Monday, with Treasury yields and the dollar also ticking up, as investors weigh the path forward for the economy and the Federal Reserve.