Here's one key measure of stock performance that suggests the market has already hit a bottom, Leuthold's Jim Paulsen says

• Cyclical stocks have been outperforming the S&P 500, suggesting the market has hit a bottom, said Jim Paulsen, chief investment strategist at Leuthold.
• New leadership in the broader market is also coming from copper prices and small-cap shares.

Cyclical stocks and other assets that have been performing relatively well compared to the beaten-down S&P 500 suggest the broader market is sloughing off its bear-market wrapping, said Jim Paulsen, the chief investment strategist at Leuthold Group.

"Aggressive" investments such as cyclical and low-quality stocks, small caps, junk bonds, and copper tend to underperform substantially during major market downswings, but their improved performance "probably implies a new Bull [market] may be lingering nearby," he said in a research note published Monday.

The S&P 500 was thrown into a bear market as the Federal Reserve quickly raised borrowing rates to deal with hot inflation that's hovering above 8%. The index remains volatile but signs of new leadership are emerging, he said.

"Cyclical stocks are holding tough. Even with widespread fear about a looming recession, the type of stocks most sensitive to the economy — cyclicals — evidently did not get the memo," said Paulsen. "Unlike prior market declines this year, cyclical stocks have held up surprisingly well in the collapse that began in August."

Small-cap stocks, another group that's sensitive to economic uncertainty, have "remarkably maintained" most of their relative gains since August, he added. The large-cap S&P 500 has dropped by roughly 21% this year, and the small-cap Russell 2000 index has underperformed it only by about 1%.

Also, commodity markets may be "changing their stripes," the strategist said.

"Gold is widely considered a safe haven, frequently favored when times are turbulent for stocks. Nevertheless, since the mid-August downturn, copper has held its own compared to gold, with its price still significantly above July lows."

There are a number of reasons that could be driving the relative outperformance of the so-called aggressive assets, including the economy and corporate earnings performing better than anticipated or a wash-out of many "Nervous-Nellie" sellers out of the market, Paulsen said.

"Not only has the S&P 500 seemingly become more bear-resistant, but its underlying leadership indicates that a market bottom may have already been reached."