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‘Frustration’ will drive stocks higher: Tom Lee

Why stocks are going up: Tom Lee

FundStrat Global Advisors co-founder Tom Lee's stringently bullish view on stocks has proven prescient time and time again in recent years.

Now, he says the gains for the market are just getting started.

I'm "bullish, and I think it's an up year, in a horizon where I think we'll have several more years of gains," Lee said Friday on CNBC's "Options Action."

The strategist, who has a year-end target of 2,325, says the already-long length of the bull market has caused considerable investor angst. But that doesn't mean the run is done.

"This is a bull market that's been around for a long time, and I think it's frustrating people because it's been hard to beat and it's been volatile," Lee said, referring to the plight of active managers attempting to pick stocks that will beat the broad market.

"I think that type of frustration makes it easier for the market to surprise to the upside," he added.

In addition, the promise of more capital expenditure in the year ahead bolsters Lee's hope.

"CapEx is a story that eventually has to turn. Companies can't let assets deplete forever, and accumulated depreciation to gross plant is now over 50 percent in the S&P for the first time in history," he said.

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Tom Lee
Scott Mlyn | CNBC

Because he is so bullish, Lee recommends that investors shift from defensive sectors like utilities to more cyclical sectors like technology, as well as financial and energy names.

"I think the recovery might actually have some better foundations, and I think we're seeing it in the labor market. So you know—I have my fingers crossed."

Still, even if the market rally becomes a more traditional one with the cyclical sectors leading, that won't necessarily solve the problem of active managers, according to Sterne Agee chief market technician Carter Worth.

"The S&P has been very hard to beat lately—in fact, active managers had their worst year in some 25 years—as the average stock is not performing in line with the aggregate," Worth said. "I think that's going to be an issue again this year no matter what the S&P does. There's going to be a performance problem."

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