The stock market has become overheated since exploding off its March lows and could be in for a strong correction, economist David Rosenberg told CNBC.
"It is overvalued by at least 20 percent," Rosenberg, formerly chief economist at Merrill Lynch and now with Gluskin Sheff, said in a live interview. "But it comes down to what your view in corporate earnings (is) going to be. By the time you're up 60 percent from any egregiously oversold low, you've already got the earnings recovery."
Rosenberg said the economy is "in a post-bubble credit collapse" where the recovery is tenuous because of the large amounts of government stimulus that have entered the system.
As the looming unwinding of government stimulus programs couples with continued weakness in the financial system and unavailability of credit, recovery could be difficult, he said.
"Bank lending is contracting at a 15 percent annual rate," Rosenberg said. "This is beyond the realm of anybody's personal and professional experience."
Rosenberg admitted he underestimated the market's ability to recover since hitting the March lows but said risk-adjusted returns still cast doubt on how robust the recovery has been.
He said corporate bonds actually have been an even better buy than stocks but haven't gotten as much notoriety.
On counterpoint, James Paulsen, of Wells Capital Management, said he remains bullish on the market, which he said will benefit as the recovery continues to take hold.
"We are real early in this. We are maybe one quarter into economic recovery," he said. "We have an average-valued market. A year from now, with earnings growth, that average-valued market is going to look very attractive."