The 'surprisingly robust' stock market will finish the year strong — and wary traders should stay invested, says Fundstrat's Tom Lee

• Fundstrat's head of research, Tom Lee, told CNBC on Tuesday that he sees a number of signals indicating the stock market will finish the year strong.
• Over the last 25 years, the S&P 500 has gained 90% of the time in the holiday season, Lee said. There is also still cash on the sidelines as investors have been cautious about taking risk during the "insanity of 2020."
• "We've had a surprisingly robust market, I don't see any reason why it's going to reverse in the next two months. So I think investors need to be risk on," said Lee.
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While the S&P 500 has remained relatively flat over the last week, Fundstrat's Tom Lee sees a number of signals that indicate the stock market will finish the year strongly.

The Fundstrat founder and head of research told CNBC on Tuesday that over the last 25 years, the S&P 500 has gained 90% of the time during the "holiday season" beginning the week of Thanksgiving and ending at New Years. He added that there is still cash on the sidelines as many investors have been cautious during the "insanity of 2020," and the economy is rebounding strongly.

"The economy does seem to be sort of finding its footing which is great news," Lee said. "I think that next year we get the potential for fiscal stimulus and there is the typical Santa Claus rally, so I think we're going to finish the year strong."

He added: "We've had a surprisingly robust market, I don't see any reason why it's going to reverse in the next two months. So I think investors need to be risk on."

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For the last few months, Lee has been advocating for the rebound of what he calls "epicenter stocks," or cyclical stocks in industries that were hit the hardest by the pandemic. He now sees these stocks gaining momentum. In a Tuesday morning email, he noted that over the past 3 days, cyclical stocks have dramatically outperformed the broader S&P 500. Out of the top 15 best-performing sub industries in the S&P 500 over the last 3 days, 10 of them have been cyclical. Retail REITs, for example, have a 5% trailing 3-day return, he said.

Lee also told CNBC that Janet Yellen will be a "very market-friendly" Treasury Secretary and her confirmation will be good for cyclical stocks.

According to his note, epicenter stocks are still under-owned as investors are "reluctant" to rotate to them after a year when growth stocks performed so well.