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Tom Lee: Stocks could rise 16 percent by New Year’s

Tom Lee: Earnings to send stocks higher
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The is down almost 3 percent year to date, but one longtime bull isn't budging.

Tom Lee of Fundstrat Global Advisors said Tuesday that he is sticking to his year-end target for the S&P 500 of 2,325, which would be a 16 percent gain from where the index closed Tuesday.

Although Lee admits it's a "stretch," he notes that the market has seen extreme rallies in the past.

"Keep in mind, in 1998, we had almost a 20 percent move in two months. I think in some ways we are in a similar position," he said on CNBC's "Trading Nation."

Although market sentiment has been negative going into earnings, Lee said that could soon turn around, and subsequently send stocks higher.

Third-quarter earnings are expected to fall 5.1 percent compared to one year ago, according to FactSet. The energy sector is projected to be the biggest weight on earnings, with an estimated 64.5 percent decline.

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But Lee said the biggest drags on earnings this quarter, a strong U.S. dollar and low oil prices, are fading.

"The dollar and oil have been headwinds to earnings, but they're starting to become tail winds next year," Lee said. "As long as [China] can stabilize and we get the continued strength in the U.S., I think it gets investors optimistic so we get that multiple expansion."

Lee said without the impact from the strengthened dollar, organic earnings growth for 2015 has risen 8 percent. Additionally, he said a stronger greenback reflects improving domestic growth.

"I don't know anybody on the planet that's expecting a great earnings season," Lee said. "But I do think what's positive about earnings are the drivers behind why we are having lousy numbers."

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