Tom Lee of Fundstrat predicts that tech earnings will determine the direction of the current stock market rally during a busy week for the Federal Reserve.

This week, key tech companies will report and the Federal Reserve will meet, which could impact the next moves for the stock market's rally, according to Fundstrat's Tom Lee.

On Tuesday after the closing bell, while on Thursday afternoon, are posting their latest results.

During Monday's session, Alphabet, Amazon, Meta, and Microsoft reached new highs. The surge in Big Tech helped the S&P 500 reach a fresh record, closing above 4,900 for the first time. Additionally, the S&P 500 also ended the day at a new high.

According to Lee, who spoke to CNBC's Contessa Brewer on "Last Call," we were anticipating new highs by late January, which was on schedule. This week will reveal how much further we will progress.

We planned to invest 5,000 in the S&P 500, but we might consider going higher," he stated. "However, I believe an air pocket will form after that point.

The Fed's two-day policy meeting, ending in a rate decision on Wednesday, will present investors with another crucial catalyst to consider.

According to Lee, investors will become anxious about the Fed and its future direction on interest rates. He stated, "I believe the Fed is not in a position to reduce rates, but what will matter is how their views on this are changing."

Since October 2023, parabolic market moves have tended to end in a significant retracement.

"Although we remain strong, there's a significant gap afterwards," Lee stated.

His year-end target for the S&P 500 is 5,200.