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US stocks overvalued, expect more volatility: Pro

Stocks down; Midday strategy with 2 pros

Expect more volatility in the U.S. stock market this month, USAA's Bernie Williams told CNBC on Wednesday.

Stocks traded lower Wednesday, two days after the Nasdaq closed above 5,000 for the first time since March 2000 and the Dow Jones industrial average and hit new records.

"The market's going to be a little bit more volatile because we are waiting on a Fed action and potentially at an inflection point," Williams said in an interview with "Power Lunch."

Traders work the floor of the New York Stock Exchange.
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He believes U.S. stocks are a little overvalued right now and thinks global investors looking at Europe may get a bit of a tailwind from the low euro.

"We're going have to see how the economy improves, and perhaps earnings for U.S. companies to get the market going again," said Williams, USAA's chief investment officer for investment solutions.

Julian Emanuel, executive director of U.S. equities and derivatives strategy at UBS, said investors are looking to what's ahead in March.

With the low euro and a sense that Europe has to prove that it can grow, and a Federal Reserve that may or may not indicate at its next meeting when it will hike rates, "it's just a time to pause, and I think we're taking profits here," he said.

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As for the strong U.S. dollar and its impact on multinational companies, it is "definitely a concern that is out there," Emanuel said. However, the foreign exchange hit has already been factored into earning expectations, he added.

Therefore, "if we do get stability then earnings could surprise to the upside," he said.

He likes the health care and technology sectors.

Williams has his eye on energy stocks. He thinks the drop in oil prices was caused, in part, by Saudi Arabia and believes prices should reverse over the course of the next year.

"Realizing that oil is a very cyclical business, we're in a downturn, this is probably a pretty good time to start buying energy stocks and wait for that upturn," he said.

Williams likes Schlumberger, Occidental Petroleum and Carnival, which he said has been a beneficiary of low oil.

CNBC's Jennet Chin contributed to this report.

Disclosure: USAA owns Schlumberger, Occidental Petroleum and Carnival. Williams and his family do not own these stocks.