Markets nearing bottom, says Fundstrat's Tom Lee

Tom Lee
Bottoms are v-shaped: Thomas Lee   

Following a few weeks of heightened volatility and steep losses, the stock market is finally nearing a bottom, with the S&P 500 index still on track to reach 2,100 by year end, Wall Street strategist Thomas Lee told CNBC on Monday.

"We still think we can do 2,100. Obviously, it's a much bigger move now because of the declines we've had, but you have to remember if we're bottoming, and we do think we're in the proximity of a bottom," Lee, founder of Fundstrat Global Advisors, said on "Squawk on the Street." "Bottoms are v-shaped, so can have a 10 percent month."

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Traders on the floor of the New York Stock Exchange, October 15, 2014.
Brendan McDermid | Reuters
Traders on the floor of the New York Stock Exchange, October 15, 2014.

To Art Cashin, director of floor operations at the New York Stock Exchange for UBS, the markets may be nearing a bottom—but he thinks it's too soon to say so.

"You got down to almost single figures in stocks that were trading above their 50-day moving average and that's a pretty rare event. That's heavily oversold," said Cashin, who has nearly 50 years of experience on Wall Street. "My gut tells me we might have to do one more re-test of those lows, however."

Still, four weeks of selloffs have produced "a ton of bargains" in the market, Lee said. Thirty-nine percent of stocks in the Russell 2000, for example, have a price-to-earnings ratio of below 15 times forward earnings, Lee noted. Twenty percent of small-cap stocks have a larger dividend yield than the 10-Year Treasury note, he said.

"You want to look at what's been hit the hardest, which has been energy and small caps," Lee said.

Though the Dow Jones industrial average closed 263 points higher on Friday, a very volatile week of trading saw the blue chips move in a 900-point weekly range in a continuation of its triple-digit daily swings. Stocks rallied into the close on Friday, but the major averages closed out the past week roughly 1 percent lower overall.

To Lee, though, Friday's strong close was "a big positive" because "it's important for the markets to show some ability to sort of rally or stabilize."

Given the volatility in the market, it's unlikely the Federal Reserve will end its bond-buying program or raise interest rates after next week's meeting, Lee said.

"When we think about the Fed, you know, they're not going to embark on a course that, you know, they have a regime to tighten and raise interest rates," he said. "It's really going to be at the appropriate time and I think maybe we're talking about the window extended for the interest rates to tighten."

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In contrast, Dallas Federal Reserve President Richard Fisher, a noted hawk and voting member on the central bank's policymaking committee, who earlier told CNBC on Monday that recent stock market volatility has not changed his outlook for ending the central bank's bond-buying program "one iota."