The bull market is showing signs of getting too frothy, and long-time bull Jim Paulsen wants investors to be prepared.
"Almost every recovery in postwar history has ended after some period of overheat conditions. I think this one is going to end that way, too," Leuthold Group's chief investment strategist said Thursday on CNBC's "Futures Now."
Paulsen expects inflation will become a bigger and bigger focus. Plus, he said bond yields will trend higher — hence changing the market's character.
"Investors cannot ride the same winners to the end of this bull market," Paulsen wrote in a note to CNBC. "I think these shifts away from old leadership — like large caps, consumer sectors and bond-like stocks — is already starting to happen but will accelerate as inflation and yields start to move higher."
He has a solution. Paulsen is telling investors to ride the rest of the bull market by buying "overheat economy" sectors.
"I would prefer to look at the industrials, materials, energy, technology and then the financials on the idea that yields are probably going to eventually head higher," he said. "I like overseas markets — both developed and emerging better than here."
Paulsen also likes oil stocks, a beaten down area of the market.
"Everyone has given up on them by a long shot. And yet, what are we doing? We're dropping the dollar by 10 percent which has already lifted industrial commodity prices a lot. If the DXY breaks below 90, look for oil to jump up towards $60. I think the dollar is going to be the bailout that might start a trend back towards energy stocks again," he said.
Despite his urge for investors to adjust their portfolios by making some contrarian plays, Paulsen is confident there are many years left before the next recession.
As long as inflation stays around current levels, Paulsen predicts the S&P 500 could gain another 5 percent before the end of the year. It would take the index to 2,600.
"I'm going to stick with this stock market, and stay bullish, and try to avoid the urge to prematurely exit," Paulsen said.