Jim Paulsen: Why I’m more positive on stocks

Wells Capital Management’s Jim Paulsen said Tuesday he has become more positive on stocks as he anticipates more attractive valuations and a buying opportunity on a spike in volatility.

Stocks were pointing to open higher on Monday as investors breathed a sigh of relief over China GDP data. But even with the S&P 500 poised for an open above 1,900, Paulsen said he thinks another leg downward is coming.

“I’d be buying, putting cash back to work here below 1,900,” he told CNBC’s “Squawk Box.” “I think we’re still going to break below those August lows and probably break 1,800, scare everyone that we’re in recession, convince everyone that we’re in a bear market, but I don’t think we are.”

Stocks will be trading at roughly 16 times earnings if the S&P reaches 1,800, Paulsen said. That’s a “very sustainable” multiple even if core inflation and wages rise by 3 percent and the 10-year U.S. Treasury exceeds 3 percent.

“That’s a very good value buy again,” he said.

Paulsen said he is looking for stock valuations to settle around 16 to 17 times earnings. He also expects a spike in the VIX, a measure of market volatility, to as high as 40 or 50. At that level, he said, he would be a much more aggressive buyer.

The VIX jumped to 30 last week, but had settled to nearly 27 by Tuesday morning.

But The Gartman Letter publisher Dennis Gartman told “Squawk Box” he believes any bounce in stocks will be short-lived because money will likely flow out of equities to make up for falling U.S. money supply.

[“source -cncb”]