Markets

Paulsen: Why good job news may still be bad news

Jobs report highlights 'struggle': Paulsen
VIDEO3:3803:38
Jobs report highlights 'struggle': Paulsen

The much stronger-than-expected December jobs report may be good news for Main Street but could turn out to be bad news for Wall Street, market watcher Jim Paulsen said Friday.

"This is a fantastically strong number today, with big gains and still no rise in the unemployment rate because the participation rate went up," the chief investment strategist at Wells Capital Management told CNBC's "Squawk Box."

"The problem with that is ... being at full employment I bet you anything Fed expectations for rate hikes just went up," he added.

Read More Expectations rise for Fed rate hikes after strong jobs report

The government said Friday the economy created 292,000 nonfarm jobs in December, nearly double the expectations. The unemployment rate held steady at 5 percent.

"If we get too good [on] growth that's also bad," Paulsen said. "The stock market is in a box where it's tough to find a growth rate for the economy that's going to be good for stocks."

Read MoreDennis Gartman sees stocks dropping another 10%-15%

Paulsen was out early last year saying stocks had looked poised for a tough 2015. He was proved correct, as the Dow Jones industrial average broke a six-year winning streak, while the snapped three years of upside.

The first four trading days of 2016 got off to the worst ever start of to a year, largely on concerns about China.

"If China's story is for real, then the stock market has got a problem because earnings aren't going to hold up in the weak global economic environment we've got," Paulsen said. "You can't pay 19 times for weak earnings growth."

Ahead of Friday's session, the Dow and the Nasdaq composite index were pushed into correction territory by Thursday's sharp decline. The S&P was about 1 percent away from a correction after Thursday.

Read MoreMohamed El-Erian: THIS dwarfs worries about China