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Stocks could snap their "ugly downtrend" by the end of the year, and bearish investors saying otherwise are unrealistic for thinking that market fundamentals won't change, according to Fundstrat's head of research Tom Lee.

Stocks have grappled with high inflation and aggressive rate hikes from the Federal Reserve this year, with the S&P 500 plummeting 25% since January. And while a further downside is possible, Lee argued that the S&P 500 could potentially bounce back from its losses this year, as the outlook on inflation and other market fundamentals may improve more than expected.

"Markets have been in an ugly downtrend… but price can change if fundamentals change. And I think in between now and year-end, as much as investors are glum and pessimistic, there are things that present themselves as things that could change how price reacts," Lee said in an interview with CNBC.

"I think there are potential fundamental positive catalysts between now and year end. I know there's price and momentum's negative, but it doesn't mean that that's going to govern what markets are going to do for the rest of the year," Lee said. 

Earlier in the year, Lee predicted the S&P 500 would rally to 5100 by year-end, a 39% increase from current levels. That contradicts what other prominent voices on Wall Street have said about the market. JPMorgan CEO Jamie Dimon warned investors of a 20% downside to stocks. Other top names have been sounding the alarm on the Fed's aggressive approach to rate hikes and the potential for the central bank to tank the market and the economy. 

"I think it's also unrealistic for investors to say that markets go straight down," Lee said. "It's been a tough year, unfortunately. I wish markets were performing better, but we're in a tough situation with inflation and that's been a tough monster to slay," Lee said.