US Markets

One of Wall Street's biggest bulls just called a correction for 2017

Dow 20K? Dow 30K is the real milestone: Tom Lee
Dow 20K? Dow 30K is the real milestone: Tom Lee

Don't be fooled when you see stock prices rising through year-end because a 2017 correction is looming, one of Wall Street's biggest bulls warned on CNBC on Wednesday.

"I think there's a good chance people have too optimistic expectations for 2017," Tom Lee, co-founder of Fundstrat Global Advisors, said in an interview on "Squawk Box."

Lee said that while it's appropriate for investors to expect markets to move higher as a result of a pickup in inflation, expectations of less regulatory pressure and more money flowing into the market, a pullback in 2017 is very possible.

"If I was an investor and I was in cash, I wouldn't try to time the market to make the best return in the next 12 months," he cautioned. "It wouldn't be a surprise if we had a 10 percent pullback next year."

A correction is defined as a decline of at least 10 percent.

Lee said investors should be bearish about 2017. "We have to start thinking now about the Fed raising rates next year, and that ... creates some risk for markets," he said.

Still, Lee hopes the Federal Reserve, which was expected to raise interest rates on Wednesday for only the second time in a decade, would maintain its dovish approach to monetary policy.

"I'm still in the camp that I think the Fed would let inflation run a little hotter, so I would just think that the Fed may actually tighten less than consensus expectations," Lee said.

As for the Dow, which has been flirting with 20,000, Lee said he was looking forward to an even bigger landmark: 30,000. "But when?" he asked.