Strategist Jim Paulsen makes case for why stocks are about to hit record highs

'Artificial' rates keeps investors in equities: Jim Paulsen
'Artificial' rates keeps investors in equities: Jim Paulsen

The should soon hit a record high due to a number of positive forces coming together, closely followed market watcher Jim Paulsen said Thursday, following the best two-day rally on Wall Street since March.

Economic growth, not only in the U.S. but around the world, is picking up in a "synchronized" fashion, and deflationary concerns are fading, the chief investment strategist at Wells Capital Management told CNBC's "Squawk Box."

"I think we're [also] past what everyone is perceiving as the worst earnings season. Earnings get a little better the rest of the year," he said.

If Federal Reserve policymakers do indeed hike interest rates in June or July, as they've signaled is a possibility, the stock market would view such a move as a vote of confidence in the U.S. economy, Paulsen said, adding a U.S. recession is unlikely in the next few years.

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While near-term positive, he did say the S&P could pull back later this year — as inflation and wages start increasing faster, raising concerns over the pace of future Fed rate hikes.

As of Wednesday's close, the S&P index was within 2 percent of its all-time closing high of 2,130, set on May 21, 2015. Paulsen has a year-end target of 2,050, which would mean a flat 2016. The S&P fell 0.73 percent for all of last year.

"There's still a lot of pessimism," Paulsen said. "We're an eyelash away from all-time highs and there's a lot of people still in the bear market camp." If too many people shift to the bull camp, he said he might get more cautious.