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Biggest bear on Wall Street Tom Lee throws in the towel, raises year-end S&P 500 target

  • Fundstrat strategist Tom Lee raised his year-end S&P 500 price target to 2,475 from 2,275.
  • Lee's previous forecast ranked as the lowest target on Wall Street, according to CNBC's Market Strategist Survey.

One of Wall Street's biggest bears raised his price target for the S&P 500 on Friday, conceding that he underestimated a number of factors — including tightening credit spreads and strong global growth.

Fundstrat strategist Tom Lee raised his year-end price target for the broad market index to 2,475, which is still lower than where it trades currently. However, Lee's previous forecast that the S&P would be at 2,275 at year-end ranked as the lowest target on Wall Street, according to CNBC's Market Strategist Survey.

"We basically got steamrolled. I don't think we want to be bearish when markets are focusing on other things," Lee told CNBC's "Halftime Report" on Friday. "High yields, which had been widening in March, this past week just made a new low, which means that we're synchronized between what credit's saying and equities. So that's the reason we painfully decided to shift from being cautious to neutral."

The S&P 500 is up 14 percent this year, to about 2556.81, surprising most Wall Street strategists, who forecast a median S&P 500 target of 2,525 in September.

Lee did nail the market last year. His year-end 2016 S&P 500 target of 2,250 came within 15 points of the market's year-end close at 2,238.

As a perennial favorite of big institutional investors, Lee was also one of the few on Wall Street to predict that a Donald Trump win in last year's election would cause stocks to rally, not fall like most had seen.The strategist offered a number of explanations for a more optimistic outlook.

Lee explained that earlier in the year he had seen trouble in the credit spreads.

"Our original forecast for 2017 called for a weak first half followed by a rally in the second half of 2017. This year, equities followed a different narrative," Lee wrote in a note to clients. "The widening of high-yield credit staring in March 2017 did not lead to a drawdown in equities."

He also noted that positive seasonal trends imply the index could continue to rise into year-end. The strategist noted that of the 31 instances the S&P 500 was up 12 percent or more by October, equities managed to post positive numbers for the rest of the year 77 percent of the time.

As one of his final points, Lee said that he believes Street earnings estimates already account for more "tax reform" than he realized.

"Achieving 10 percent-plus growth rates, in our view, is premised on either global growth sustaining above trend for another four quarters (even as ECB and Fed set to tighten) or on tax reform. Thus, we believe tax reform is baked into estimate," he said.

WATCH: Tom Lee says S&P will fall 4-5% in next month