Rally in US Is 'Real', China 'Immense Bubble': Strategists

The recent rally in the stock market is a "real rally," as investors' confidence was battered by fears of a depression earlier this year and now it is coming back, James Paulsen, chief investment strategist at Wells Capital Management, told CNBC Thursday.

But talk of decoupling and hopes that the Chinese consumer will help drag the world economy up are overblown, Richard Bernstein, CEO at Bernstein Capital Management, also told "Squawk Box."

For the US, the question is the length and the strength of the expansion of the economy once the government's "life support" is taken off, but we will probably see a cyclical, normal rebound in earnings, Bernstein said.

On the other hand, the stimulus hasn't worked its way through the economy yet, Bernstein added, while Paulsen said the rally lacked volume but was real.

"I think one of the biggest things that’s driving Wall Street right now is that March low," Paulsen said. "And the only reason we got down there is that we created that nationalize banks scare."

"It was the depression that wasn't. We sold on that," he added.

Replenishing inventories and consumers slowly coming back to the shops will ensure a speedier recovery than many had thought, according to Paulsen.

"I think we're really early in this recovery which also tells me we're really early in the stock market recovery," he said.

"I think we're going to be back in positive payroll growth before the year is out. I hope I'm right," Paulsen added.

China Story Overblown?

China, whose stock market has risen by around 100 percent since its lows last October, is not the place investors should look for right now, as it looks prone to high volatility, Bernstein said.

"China is an immense credit bubble that's going on right now. I would actually rather invest into the US right now than invest in China," he said.

"They have massive overcapacity and their solution to that problem was to build more capacity over that," Bernstein said, noting that now China has started to scale down its capacity.

Paulsen disagreed, saying emerging markets now have the strength to help the US economy grow rather than drag it down.

"I think there's real fundamental shift with what's going on in China, not only in China but in the developing world," he said.