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Strategist Jim Paulsen: It's OK to buy stocks before final tax cut passage but sell after

Key Points
  • It's OK to buy stocks before the GOP passes its tax cut bill, but investors should sell immediately after that, strategist Jim Paulsen says.
  • "When it actually gets passed, you might want to be selling on that news," strategist Jim Paulsen says.
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Dow and S&P at record high but will it continue into 2018?

It's OK to buy stocks before the Republicans pass their tax cut bill, but investors should sell immediately after that, closely followed strategist Jim Paulsen told CNBC on Monday.

"I think it's going to get passed, but I think it'll be a little bit watered down. Maybe a higher corporate tax rate than what's out there right now," said Paulsen, chief investment strategist at Leuthold Group.

"But my feeling is that this feels a lot like buy the rumor and sell the news," he said in an interview on "Squawk on the Street." "When it actually gets passed, you might want to be selling on that news."

Paulsen said last week he believed the tax bill would be "watered down as far as a stimulative force." Republican's "need a victory more than anything now," Paulsen said Wednesday. "And I think they'll get something passed, but it might not be that significant."

Earlier, he also said the market may be due for a correction in 2018, but it will be a buying opportunity.

Stocks were sharply higher Monday after Senate Republicans narrowly passed their tax bill early Saturday. The House approved its bill last month. The Senate and House must now reconcile their versions of the legislation. Republicans hope a deal will be achieved by Christmas.

Also on "Squawk on the Street," strategist Jeffrey Kleintop said earnings growth has supported the stock market "month to month," not necessarily the promise of tax cuts. He also says news on the combined tax bills is a possible "event risk."

"It's not a done deal yet," the chief global investment strategist at Charles Schwab said about the tax bill. "We think that they will definitely come up with something. But certainly, conference is going to be challenging as they bring both sides together."

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