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Why the bull rally will continue: Tom Lee

Despite a batch of mixed economic data, investors should expect a 10 percent rise in stocks this year, Tom Lee said Tuesday.

"Stocks are reacting positively to inflation. For instance, stocks that are outperforming this year are the ones raising capex for the first time in four years," Fundstrat Global Advisors' head of research told CNBC's "Squawk on the Street."

Lee added that he believes the rise will be led by housing, technology and financials. "[Home builders] broke out of a three-year range, hit an eight-year high, so we said that housing starts should break out into an eight-year high. Now, they've broken out into new highs, but an eight-year high would be 1.34 million [housing starts], so I think there's still room for housing starts to rise."

Earlier on Tuesday, fresh data showed new U.S. single-family home sales rose more than expected in April and the median price surged, suggesting the housing market recovery was gaining traction.

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The Commerce Department said sales increased 6.8 percent to a seasonally adjusted annual rate of 517,000 units. March's sales pace was revised up to 484,000 units from the previously reported 481,000 units.

In addition, the S&P/Case-Shiller 20-city composite index gained 5 percent year over year in March, matching February's pace of appreciation, S&P Dow Jones Indices said Tuesday.

Fed distracting markets

Tom Lee
Adam Jeffery | CNBC
Tom Lee

Lee also said he believes investors have been too focused on Federal Reserve rate policy.

"I think we're spending way too much time worrying about the Fed. We're ignoring the things that are turning positive," he said.

In fact, Stanley Fischer the central bank's vice chairman, said in a speech Monday that investors shouldn't be so concerned with the timing of the first interest rate increase.

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"What we are thinking about is raising the interest rate from zero, which is an ultra-expansionary monetary policy to a quarter percent, which is an extremely expansionary monetary policy. This will be a gradual process," Fischer said.

U.S. stocks were lower late-morning Tuesday, with all major indexes down nearly 1 percent.