"I think the market rally is a breathing space rally," Beat Wittmann, chairman of Switzerland's Porta Advisors, told CNBC.
Central banks, led by the Fed, acted too late on inflation and will now "overtighten," leading to "a lot of pain," he added.
The S & P 500 hit a five-week high earlier this week on hopes that Federal Reserve tightening is beginning to take effect. Reinforced by cooling house prices and disappointing earnings , it prompted suggestions that the U.S. central bank may rein in future rate hikes after November's meeting. But investors should think twice before chasing the bounce in stocks, according to one strategist. "I think the market rally is a breathing space rally," Beat Wittmann, chairman of Switzerland's Porta Advisors, told CNBC's "Squawk Box Europe" Wednesday. "The Fed is a way from blinking or pivoting or changing its course very clearly. Therefore I think this is simply getting some pause and time and possibility to reposition risk assets before the year ends." Central banks "got it wrong" on inflation, hiking too late, and will now overshoot, he said. "You can expect that central banks, led by the Fed, followed by the [European Central Bank], Bank of England, Swiss National Bank, will continue to tighten and they will overtighten, that means two, three times more," he said. "That will cause a lot of pain." In September, the Fed raised its benchmark interest rate by 75 basis points to a range of 3%-3.25%, the highest it has been since early 2008. It is widely expected to hike by the same amount on Nov. 2, but economists are split over how aggressive the rate increases will be after that. A majority of economists polled by Reuters this week forecast a 50 basis point hike in December. U.S. inflation came in at 8.2% year-over-year in September and economic indicators continue to send mixed signals on whether and by how much the economy is cooling. "I think that interest rates take time to work through the economic system," Wittmann continued. "We have three times higher rates this year in all Western economic spaces. We have a very high dollar , an undershooting euro and pound , and these things will work through the system, and we have not seen it yet," he said. The best indicator of this will be corporate default rates and yield spreads in the high yield debt space, Wittmann added. Central banks will only blink if there's a reason to do so, as the Bank of England did this month to prevent a collapse of pension funds , he said.