Things are good right now but there may be more downside ahead: Jim Paulsen

  • The market may be moving higher, but the same issues that plagued it during its recent downside will probably return, says Jim Paulsen.
  • He believes the 10-year yield is only partway through its reset.
  • Paulsen also thinks there is more downside for stocks ahead.

The market may be moving higher, but the same issues that plagued it during its recent downside will probably return, noted strategist Jim Paulsen told CNBC on Thursday.

"Main Street is doing really well. The economy fundamentally is great," the chief investment strategist at Leuthold Group said on "Closing Bell."

"That's making bulls bullish but it's the thing that makes bears concerned because we're at full employment," Paulsen added.

While the Dow Jones industrial average saw its sixth straight day of gains Thursday, Paulsen isn't convinced the concerns that dragged the market down recently have gone away.

The central issue is the pressure from an overheating economy and the need for rates to be reset higher, he said.

"I think it's going to come back again," said Paulsen. "Job creation is still too strong for a fully employed economy not to have wages and inflation go up further."

He believes the 10-year Treasury yield is only partway through its reset. The benchmark bond's yield went above the psychologically important 3 percent on Wednesday but dropped after inflation data missed expectations on Thursday. Bond prices and yields move inversely.

Paulsen also thinks there is more downside for stocks ahead.

"It's good right now but I wonder if a month from now or two months from now we're going to be back to the same issues again, with more repricing needed."

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