Strategist Tom Lee makes case for double-digit S&P 500 return by the end of 2016

Tom Lee: 'Catch up rally' may be brewing amid 'strange' market
Tom Lee: 'Catch up rally' may be brewing amid 'strange' market

Stocks look poised to breakout and mount a traditional rally into the end of the year, longtime market bull Tom Lee told CNBC on Wednesday.

Lee, co-founder of boutique research firm Fundstrat Global Advisors, put what he calls a "highly probable" 2016 price target on the of 2,325. That level would represent a more than 8 percent increase from Tuesday's close, and a nearly 14 percent advance on the year.

In 2015, the S&P 500 ended lower for the year, its worst year since 2008. The beginning of 2016 was rocky and in February the index bottomed out for the year so far.

Lee bases his 2016 call for the S&P 500 on history. "The stock market and the high-yield market almost always move in sync," he said. "The high-yield market is up 18 percent this year.

"The S&P, any time the high-yield market has been up 10 percent, has averaged a 22 percent gain," Lee said. "The stock market is only up 4 [percent]."

Lee predicted what he described as a "catch-up rally," with the outside caveat that stocks have been acting strangely. "I wonder if it's the [stronger] dollar or the election," he said.

The U.S. dollar index formed a bullish "golden cross" pattern on Friday, according to technical analysis. Typically, a rising dollar has not been good for stocks.

"This market has gotten a little dull, shrugging off earnings." Lee said. "Overall, it's been actually one of the better earnings seasons. Now we finally have positive earnings growth." But he warned that investors don't seem convinced "this is a permanent turn."

As for the Federal Reserve, the market seems to be pricing in a December interest rate hike, Lee said. The Fed raised rates for the first time in more than nine years in December 2015.