Jim Paulsen: Markets may hit new lows yet

Wells Capital Management's Jim Paulsen on Monday reiterated his call that the stock market correction may not be over, and said that it could in fact hit new lows.

Last week, Paulsen issued a note laying out reasons for why the recent rally may not hold. On Monday, he said he had not yet seen significant flight from stocks to safe-haven Treasurys, the dollar, or gold that would signal a capitulation trade had arrived.

Read More Strategist Paulsen: Market bottom is not in

"I kind of think we might go back down and challenge those lows at some point yet, and maybe even break below there, and thoroughly scare people finally with some final capitulation, and more importantly, maybe find a valuation level that can support some of the new challenges we're going to now face going forward," the chief investment strategist told CNBC's "Squawk Box" on Monday.

Those challenges include a very rapidly aging earnings cycle and a need to raise interest rates, he said. Paulsen also believes wage and price pressures will pick up, challenging both stock valuations and corporate profit margins.

"The valuation level of this market probably has to be somewhat lower, I think more around 15 times earnings or so, to sort of withstand some of the challenges we have here," he said.

The S&P 500 is trading at 16.5 times forward earnings, slightly above the 15-year average of 16 times, according to S&P Investment Advisory Services.

Read More Plenty of year-end targets, but little consensus

If markets keep going up, valuations could reach 18 or 19 times forward earnings, Paulsen said.

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