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If Fed hikes, stocks could still return nearly 10%, strategist Jim Paulsen says

History shows a stock market like today's can not only withstand a Federal Reserve interest rate hike but even advance, Wells Capital Management's Jim Paulsen told CNBC on Thursday.

A day after central bankers held the cost of borrowing steady at their September meeting, Paulsen contended on "Squawk Box" that earnings hold the key to stocks. Further, he said the profit rollover that began with the commodity collapse should be near an end.

The prospect for "moving back towards" positive earnings growth looks good in the second half of this year, the chief investment strategist said.

Just 2 percent earnings growth would exceed the yield on the 10-year Treasury, he pointed out. The 10-year yield was around 1.65 percent in early trading Thursday.

Back to 1950, when the Fed raised rates while earnings growth exceeded the 10-year yield, the stock market has outperformed, Paulsen said, turning in "almost 10 percent annualized gains."

"I think the market can handle rate increases as long as earnings return," he added.

Also on "Squawk Box," Fidelity Investment's Jurrien Timmer said Thursday that investors shouldn't expect a significant rally until earnings growth returns.

Paulsen said he wishes the Fed would just "get on with it," referring to raising rates for the second time in a decade. "I hope they do [hike] in December."

Investors now look to whether the Fed might pull the trigger in December, a year after its first hike in more than nine years.

The Fed's inaction is "keeping us right at the starting line," because stocks do generally have a "knee-jerk" reaction lower initially after a rate hike, he said. "I think the market was ready for it [this month] and would have been fine if the Fed came through [long term]."

The Dow Jones industrial average surged 163 points and the Nasdaq hit a record high after the Fed's September no-go. But at her post-meeting news conference, Fed Chair Janet Yellen said she would expect a rate hike this year.