The S&P 500 has at least three more years of double-digit gains and could peak at about 3,500 or 4,000, Fundstrat Global Advisors founder Tom Lee said Monday.
"I think there's so much pent-up demand in the economy. We're thinking a trillion-dollars-per-year-type levels of investment spending that could surge. I think we're only midcycle," Lee told CNBC's "Squawk Box."
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He said two things could change his bullish outlook.
In the first scenario, demand becomes so severely depressed that the economy falls into deflation. That possibility hinges largely on policy in Washington, Lee said, adding that the results of the midterm election were a big positive for the economy.
In a second and opposite scenario, growth ignites but there is too little excess capacity—too few workers and commodities—and inflation surges. That case is less likely, Lee said.
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In the near term, Lee said, markets could have upside through year end. With 75 percent of funds trailing the market this year, investors may not sell out positions to lock in gains, he said.
"More people are under the gun to catch up," he said. "We're in a seasonally strong period, and then as we think about next year, if in fact the forecasts are right about global lift coming, I think everyone wants to be bullishly positioned."
Reacting to the unexpected contraction in Japan's third quarter GDP on Monday that plunged the country into recession, Lee said the root cause was likely related to a sales tax hike passed earlier this year. He added that Japan is now unlikely to pass a second tax increase, and the toll on global growth from the first hike is nearing an end.
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The surprise reading was also a setback because Japan has been trying to create inflation expectations, but more stimulus could be coming, Lee said.
"I think this is an all-out effort and we've seen some success in the U.S. with changing inflation expectations with monetary expansion. We could be hopeful that it could work."