Strategist Jim Paulsen sees a surge for stocks; hopes Fed ends waiting game

Markets positioned for bull run: Pro
Markets positioned for bull run: Pro

The stock market looks ready to break out to the upside heading into next year, Wells Capital Management's Jim Paulsen told CNBC on Wednesday.

The firm's chief investment strategist said on "Squawk Box" that there are a number of factors that should lead stocks higher, including a rosier outlook for earnings as the third-quarter reporting season gets underway this week.

"I think we're going to maybe find out we are finally turning northward on earnings momentum," he said.

Wall Street saw a major sell-off on Tuesday, with health care leading the way lower on concerns about more regulations should Democratic nominee Hillary Clinton win the presidency. The fell 1.2 percent to 2,136 — breaking just below its 100-day moving average.

Despite Tuesday's slide, Paulsen said he's getting more bullish on the market. After some apprehension, he turned positive again on stocks after the February lows.

Paulsen said he hopes the Federal Reserve ends the waiting game and hikes interest rates before the end of the year. "I think we'll get comfortable with it and more on."

The central bank meets next in November, but the market sees December as the more likely gathering for a move. Policymakers increased rates in December 2015 for the first time in more than nine years.

Gibbs on markets: Looking for a solid, strong end of the year
Gibbs on markets: Looking for a solid, strong end of the year

With the election less than a month away, heightened anxiety and volatility in the market is expected, said investment strategist Erin Gibbs.

The equity chief investment officer at S&P Capital IQ added that historically, October tends to be a bad month for markets.

"If we do have some shakeouts during the month, we're still looking for a solid and strong end to the year for the U.S. stock market," Gibbs told CNBC's "Squawk on the Street" on Wednesday.

High-yielding stocks will see low returns and overpriced valuations for the third quarter, Gibbs predicted, calling for a change in market leadership at the end of 2016.

Gibbs said consumer discretionary earnings will provide a better picture of consumer activity heading into the fourth quarter, and the sector could emerge from October's volatility as a fourth-quarter leader.

Volatility aside, the strategist said, "I think we're going to see this transfer of leadership into the more cyclical stocks.'