Stocks ready for 'rip your face off' rally: Saut

Potential for 'rip you face off' rally: Jeffrey Saut
Potential for 'rip you face off' rally: Jeffrey Saut

Raymond James strategist Jeffrey Saut said Tuesday stock investors should get ready for a "rip your face off-type rally."

"You've got massively oversold conditions in the equity markets," the firm's chief investment strategist told CNBC's "Squawk Box." He said stocks could reach new highs by year-end: "The setup is pretty good for a rally to the upside that's going to surprise a lot of people."

The recent negativity in the market does not deconstruct the bullish case here, Saut added. The sharp decline in junk bonds and oil prices on Friday led to a selloff of nearly 310 points in the Dow Jones industrial average. Stocks bounced higher Monday and in premarket trading Tuesday.

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"[Stocks] are not as cheap as they were back on [August 21] when I actually said the market is going bottom today. But they are not all that expensive [either]," Saut said.

Just days after Saut's August call on CNBC, the Dow, the , and the Nasdaq composite index hit their closing lows of 2015.

Saut said he made that summer swoon prediction based on a proprietary market timing model, which also signaled a top in late October. That also turned out to be correct within days. The S&P has fallen about 4 percent since then, as of Monday's close.

But he said Tuesday the model "is calling for a rip your face off rally right here."

Saut believes the stock market can weather an interest rate hike by the Federal Reserve on Wednesday at the conclusion of the central bank's two-day policy meeting.

Fed Chair Janet Yellen is a "gradualist," he said. "I think she does raise rates. I think she then steps back two, three, four or five months to see the impact on the economy, on the financial markets, [and] on the real estate market before she does another rate ratchet."