The market is show signs of fear over rising inflation and slowing economic momentum, closely followed strategist Jim Paulsen told CNBC on Wednesday.

"This idea of facing higher rates and higher inflation with decelerating economic momentum — that's stagflation and that's very frightening for both stock and bond investors," the chief investment strategist at The Leuthold Group said on "Power Lunch."

Stagflation, prevalent in the late 1970s and early 1980s, is a condition of high inflation but low wage growth and elevated unemployment.

And if corporate executives are saying during earnings conference calls that "momentum is peaking out, that adds to that fear," Paulsen noted.

Caterpillar was among those that addressed the issue. The company reported earnings and revenue that beat expectations on Tuesday, but its chief financial officer said the first-quarter results may be the "the high-water mark for the year."

Strong earnings from Boeing helped push stocks slightly higher Wednesday, after Tuesday's sharp fall. However, gains were kept in check as interest rates reached levels not seen in years.

The benchmark 10-year Treasury yield traded at 3.03 percent after breaking above 3 percent for the first time since 2014 on Tuesday.

Paulsen believes there are going to be "really good earnings" but said it isn't enough right now to significantly push the market higher.

"Until we get to lower valuations and probably higher yields than we are today I'm not sure that the stock market is going to respond real well to them," he said.

Because of the tug of war between earnings and interest rates, Russell Investments strategist Mark Eibel is finding opportunity elsewhere.

"We're pushing a rock uphill. It's getting harder in the U.S. Go outside the U.S. where you've still got more upside to cheaper prices," Eibel, director of client investment strategies at Russell Investments, said on "Power Lunch."

He likes Europe and emerging markets. In the U.S. he likes financials as well as value sectors like energy.

— CNBC's Jeff Cox and Fred Imbert contributed to this report.

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