90% chance stocks see a year-end rally: Tom Lee

Perennially bullish strategist Tom Lee believes the S&P 500 is set to rally 6 to 8 percent before the year is out.

The co-founder of Fundstrat Global Advisors says there's a 90 percent chance the market's run will accelerate before New Year's Eve.

That specific number is based on his analysis of prior market moves. Lee found that since 1940, the S&P ended the year higher in 27 of the 30 times it was up by 5 to 20 percent through mid-September.

One might think that election years, which threaten to bring a great deal of uncertainty to the end of the year, may hold something different. But out of the nine election years covered by the above stat, eight of them saw stocks gain in the final 3½ months, Lee says.

So what drives the rally continuation effect?

Lee quips that "Newton's law of motion [is] at play," referring to the physical law that an object at rest will tend to remain at rest, while an object in motion will tend to remain in motion.

"Whatever drives the market to higher levels by September … should follow through into the end of the year," Lee said Friday on CNBC's "Trading Nation."

There may something a bit more pecuniary at play as well: Investors who are lagging the market could feel pressure to invest heavily in order to catch up.

"The performance chase becomes a bigger deal in the fourth quarter, so I can see why the market sort of comes to life in the final months of the year," Lee said.

He added that that force may be even more salient this year, given that "we know investors are under-invested."

The bottom line, for Lee, is that the market's 2.5 percent dip from all-time highs "needs to be bought aggressively."

The S&P is up 4.7 percent this year, although it was up slightly more than 5 percent as of Thursday, which is the date Lee used for the historical analysis.


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Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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