Stocks will see 'significant new highs' if there is a breakthrough in COVID-19 vaccine development, Fundstrat's Tom Lee says

• Stocks are set to see "significant new highs" if there is a positive breakthrough in the race to develop a successful COVID-19 vaccine, Fundstrat's Tom Lee said on Monday.
• In an interview with CNBC's Scott Wapner, Lee said the chances of a breakthrough look good given that there are 133 vaccines candidates currently in development.
• "By December I think you're going to see progress," Lee said in terms of a successful vaccine candidate showing positive clinical trial data.
• And positive clinical trial data is all the market needs to hit new all-time highs. According to Lee, "I think we have to have positive trial data, but I don't think we need a commercial vaccine."
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Stocks are set to experience "significant new highs," Fundstrat's Tom Lee said in a CNBC interview with Scott Wapner on Monday.

Lee said his call for new highs and for the S&P 500 to hit his year-end target of 3,450, representing upside potential of 6% from current levels, all hinges on positive trial data tied to a COVID-19 vaccine.

"It's an essential view, meaning I think we have to have positive trial data, but I don't think we need a commercial vaccine," Lee said.

Lee explained that there are as many as 133 COVID-19 vaccine candidates under review, and the market views them as "133 shots on goal."

"There's still that positive skew ... by December I think we're going to see progress," Lee added.

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But Lee also warned that his call for new highs in stocks can evaporate if the vaccine candidates fail, saying to Wapner, "If we exhaust all 133 [vaccines] by December and none of them are succeeding, then there's no way we do 3,450."

Lee also pointed to the VIX breaking down at the 24 level as one sign that the outlook for the economy is positive. "I think the VIX is telling us that economic risk must be diminishing," Lee said.

To play the potential upside in the market, Lee likes technology stocks, saying in the interview that "tech's share of US market cap should be much higher in the future."

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But in addition to tech stocks, Lee thinks investors should buy "epicenter" stocks, or stocks that were hit hard by the COVID-19 pandemic, like airlines, cruise lines, and casinos, among others.

"We think that if virus cases are plateauing and we get some good news on the vaccine, we're going to see that rotation back into epicenter stocks, or what people call cyclicals," said Lee.

In addition to the potential of a positive vaccine breakthrough, Lee said investor positioning is one more reason to be bullish on stocks.

Lee said that there is almost $5 trillion in cash on the sidelines, and $1.7 trillion of that is in retail as of Monday. As that money "leaks into the market," it will go into FAANG stocks and bond proxies, according to Lee.

In addition, fund flows and investor cash levels are at an extreme not seen since 2009, which is one more reason to be bullish, Lee added.

"I think investors just have liquidated so much of their holding in equities. We're talking more cash on the sidelines today than there was in 2009," he explained.

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