The S&P 500 could be poised to break out of its recent flat trading range, according to veteran Wall Street strategist Jim Paulsen. The key indicator to monitor is not traditional technical analysis or corporate earnings, but rather the growing economic unease among high-earning Americans, the former chief investment strategist at The Leuthold Group suggests.
The S&P 500 has remained roughly flat since the beginning of 2026 as investors navigate uncertainty surrounding Trump’s tariff policies and concerns about artificial intelligence disruption. Paulsen’s new market indicator, which he calls the poor/rich sentiment measure, has reportedly forecasted recent market rallies and is now signaling a potential upswing ahead.
Understanding the Poor/Rich Sentiment Indicator
Paulsen’s methodology involves comparing consumer confidence in the economy by income level to calculate a daily confidence ratio. He then combines this with a ratio of Walmart’s stock performance relative to the S&P Global Luxury stock price index. This dual approach aims to capture the diverging economic outlooks between different income groups.
According to the strategist, lower-income households have shown improving sentiment recently, while high earners have become increasingly pessimistic. This narrowing of the sentiment gap between income levels represents a potential buy signal for equity markets.
Historical Performance and Market Timing
The indicator has spiked higher eight times since 2018, according to Paulsen’s analysis. These instances occurred in late 2018, October 2019, March 2020, May 2022, October 2022, November 2023, September 2024, and April 2025. During each of these previous spikes, the S&P 500 was positioned at levels that represented favorable buying opportunities, the strategist noted.
Since the end of 2025, Paulsen’s poor/rich sentiment indicator has climbed significantly. The measure’s recent spike shares similarities with increases observed at the end of the 2022 bear market and during the 2020 pandemic lows, suggesting a comparable market environment.
Why Wealthy Pessimism Signals Market Opportunities
The strategist attributes the indicator’s success to a counterintuitive principle: when the high-income cohort loses faith in the economy, stock markets are often at a low point. Paulsen points to a downturn in Bloomberg’s US billionaires relative total return index as evidence that wealthy investors are losing confidence in market prospects.
However, this pessimism among the affluent may present opportunities for contrarian investors. The strategist emphasized that periods when the rich express more concern than lower-income households have historically been favorable times to increase equity exposure.
Secondary Indicators and Market Context
Additionally, Paulsen highlighted the importance of considering multiple factors when making investment decisions. He cautioned investors against relying on a single gauge, regardless of its historical accuracy. The current environment of tariff uncertainty and AI-related market volatility adds complexity to the investment landscape.
Meanwhile, the strategist suggested that current market conditions may warrant reassessing equity allocation. For investors who are underinvested, the recent volatility could present opportunities to add positions during market selloffs, according to his analysis published on Substack.
Investment Implications and Strategy
In contrast to purely technical approaches, this sentiment-based indicator focuses on psychological and behavioral factors across income segments. The divergence in outlook between wealthy and lower-income consumers may reflect different exposures to various economic pressures, from inflation to employment concerns.
The indicator’s timing has coincided with major market turning points over the past several years. The 2020 pandemic lows and the 2022 bear market bottom both saw similar spikes in the poor/rich sentiment measure, lending credence to its predictive potential.
Market participants will continue monitoring both sentiment indicators and traditional fundamental metrics to gauge the S&P 500’s direction in coming weeks. The uncertainty surrounding tariff policies and technological disruption remains, though Paulsen’s contrarian signal suggests current pessimism among high earners may already be priced into equity valuations.
