Stock market has used up a lot of capacity, says economist Jim Paulsen

• Stock market valuations (S&P 500 price and earnings) are significantly above historical trend lines, with earnings at unprecedented highs relative to trend.
• Investor sentiment is complacent, with high household equity holdings and low cash, while profit margins and investment spending are at record highs.
• Economic momentum is slowing, especially in consumer and housing sectors, suggesting potential for lower rates but also increased recession fears.

Economist Jim Paulsen expresses concern that the stock market has 'used up a lot of capacity' with high valuations and complacent investor sentiment. He anticipates waning economic momentum, particularly in consumer spending, which could lead to lower interest rates coinciding with falling stock prices as recession fears replace inflation concerns.