Bernardo Montoya/Reuters
"Buy CRAP - Computres, Resources, American banks and Phone carriers - all levered to investment recovery, inflation and deregulation," Lee wrote in his 2017 stock-market outlook published on Friday.
Lee, who had the highest year-end target for the S&P 500 among major strategists in 2016, has a 2017 target of 2,275. That's less than 2,300, the lowest target among 15 equity strategists at major firms tracked by Bloomberg.
The S&P 500 started this year around 2,257, so Lee's target represents less than a 1% gain for the 12-month period.
The key market driver in the new year will shift in focus to corporate earnings from quantitative easing - the extensive stimulus package the Federal Reserve provided after the financial crisis. This shift would happen as monetary policy takes a backseat and the fiscal policy that President-elect Donald Trump promised kicks in, Lee says.
Also, Lee forecasts that inflation expectations will turn higher after four years of disinflationary sentiment. On Friday, the December jobs report showed that average hourly earnings increased by 2.9%, the most since June 2009, creating another potential signal of higher inflation.
Like many other strategists, Lee's 2017 outlook includes the assumption that the next administration will ease business regulations. Sentiment among business owners has already increased since the election, and this confidence could translate into more corporate investment this year.
However, Lee sees the risk of a 5% stock-market decline in the first half of the year. One reason why this could happen is if the expected fiscal policy hits road bumps, Lee said.