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Jim Paulsen: The Fed may cause 'full blown' correction

The debt crisis in Greece and the stock market meltdown in China have just been "warmup acts" to the main event for U.S. investors: the Fed.

That's according to closely followed market watcher Jim Paulsen.

The chief investment strategist at Wells Capital Management said Monday he expects central bank policymakers to hike interest rates in September for the first time since 2006.

The notion that stocks will just "skate right through" the Federal Reserve's initial tightening seems unrealistic, Paulsen told CNBC's "Squawk Box."

Paulsen got cautious on U.S. stocks at the end of last year and predicted a sideways 2015, which has come to pass so far, with the Dow Jones industrial average up about 1.5 percent this year based on Friday's close.

But the S&P 500 has returned more than double the Dow, and the broader market index was just about 4 points from a record close ahead of Monday's trading.

The Nasdaq composite has been the big winner this year—up 10 percent based on Friday's close in record territory after the best week since October.

Acknowledging the upswing in stocks, Paulsen said the market could go higher in the short term. "But we may get a full blown correction yet," he warned, pointing out it's been "third-longest period in post-war history without a correction."

He advised investors to look outside the U.S. "Most of the rest of the world is not in the situation of the United States," he said. "They do not need to raise rates, moving towards more hostile policies toward financial markets."

Stock markets in Europe and Japan have underperformed U.S. stocks for the past couple years or so, he argued, saying they're a much better "relative value."

Global market strategist Anastasia Amoroso told CNBC she also believes the Fed will hike rates in September.

The CME's FedWatch tool, which tracks market reaction on potential changes to the fed funds target rate, puts the chances of a September move at 21 percent and December at 58 percent.

Appearing before House and Senate lawmakers last week, Fed Chair Janet Yellen reiterated central bank policymakers could raise interest rates this year.

Against that backdrop, Amoroso of J.P. Morgan Funds told "Squawk Box" the U.S. stock market "is not so cheap, although it's not very expensive."

"The value on the aggregate market is not there," she said. "The value resides underneath that aggregate," in sectors like banks and homebuilders, which are "some of the leaders this year."

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