The stock market should rally 10 percent after the midterm elections through the end of the year, closely followed strategist Tom Lee told CNBC on Tuesday.
With so much risk recently taken off the table heading into the elections, “it’s easily a recipe for a big bounce,” the co-founder of Fundstrat Global Advisors said on “Fast Money: Halftime Report.”
He has a year-end target of 3,025 for the S&P 500.
U.S. stocks rose slightly on Tuesday as voters headed to the polls. Democrats are expected to take control of the House, while Republicans are expected to keep a slight majority in the Senate.
The market has been volatile recently. Stocks suffered steep losses in October thanks to concern about the elections, as well as fears about rising rates and a possible slowdown in earnings growth.
Lee, former chief equity strategist at J.P. Morgan, called the bottom of the sell-off on Oct. 31, telling clients in a note that the market was “massively oversold.”
However, he told CNBC on Tuesday that the initial bounce from last week is occurring in a market that does not have full participation.
Right now, most of his clients have yet to wade back in. Instead they are waiting for a “decisive sign to add risk,” Lee said.
“That second wave, when they add risk, is they’re going to buy what got beaten up.”
That means things like technology, discretionary, industrials, energy and materials, he added.
Meanwhile, if the result of the election is a split Congress, where Democrats take the House and Republicans keep the Senate, it “is really not great for next year.”
“I don’t think it matters into year-end,” he said. “Until year-end, it is still a relief rally.”
According to data compiled by Fundstrat Global Advisors, the median stock market return since 1896 was only 1.9 percent a year after the House majority flipped from one party to the other. However, the median return was 16.8 percent when the House majority stayed the same after the midterms.