One of Wall Street's biggest bulls is waving the white flag on the rally and delivered an unnerving message for investors: A near-term storm is on the horizon for stocks.
Lee, who serves as head of research for Fundstrat Global Advisors, recently announced his firm's 2017 year-end price target of 2,275, which is approximately 1 percent below current levels. The market watcher expressed concern over value stocks getting off to a weak start this year.
"I think it's possible that we're going to have a bumpy first half," Tom Lee explained on CNBC's "Futures Now" Thursday. "It won't be a straight shot upward for stocks. The first half, we're going to have a draw-down by 5 percent."
His analysis echoed that of veteran technician Louise Yamada, who told CNBC last week that the is stuck in a "sideways consolidation" that could signal "a pullback of about 5 or 6 percent."
However, Lee encouraged investors to buy the dips, in anticipation of an upswing in the second half of 2017. He is also adamant that a pullback won't lead to a bear market.
This is in large part because Lee believes the Federal Reserve is no longer the key backstop for markets. Furthermore, Lee is encouraged by the potential for additional gains stemming from the anticipation of pro-growth policies under President Donald Trump.
If executed properly, tax reform, lighter regulation and fiscal expansion should trigger faster economic growth, which Lee says favors value in the markets. Additionally, he says that fiscal expansion occurring in multiple developed economies will help bolster growth in the U.S.
"We essential have a policy 'put' in place," noted Lee. "It's setting the stage for earnings to be the primary driver [of markets]. That's how you're going to pick stocks and sectors."
'Pretty amazing'
Indeed, earnings have been strong thus far. According to Thompson Reuters, if the remaining 76 S&P 500 Index companies that have yet to issue quarterly results report estimates in line with expectations, earnings growth will be up 8 percent from the fourth quarter. Additionally, 67 percent of earnings reports have come in above estimates, while 12 percent of reports have matched estimates.
"This is pretty amazing," explained Lee. "Two quarters ago, people were talking about peak earnings and peak margins. Now, all of a sudden, people think it's mid-cycle and we have the best earnings we've seen in over two years."
Ultimately, Lee says investors should look towards energy and materials as sectors with upside potential.
"We're going to see 10 percent plus comps later this year," Lee added.