US Markets

Trump foreign policy may be the market's first stumbling block: Strategist

Dow 20K risk protection plays: Pro

Whether the hope-fueled rally in the markets continues will depend on how the United States interacts with other nations under the Trump administration, strategist Lou Brien told CNBC on Wednesday.

"I always look for what to worry about, and the one thing that jumps out is how we get along with others," the DRW Trading Group strategist told "Squawk Box." "That's the thing that jumps out at me as the first potential stumbling block of any magnitude."

Brien said the biggest problem with any sweeping change in U.S. policy was how long it would take to make those changes.

"Any sort of upset on trade deals because of the globalization of the supply chain, ... that could really make the economy stumble when you think that you're trying to do something that's good, maybe bring business production back here, but it doesn't happen from one day to the next," the strategist said.

"We're not rallying quite yet on fact. We have to get the guy in office and see how it works," he added, referring to President-elect Donald Trump.

Brien recalled how markets behaved in response to the election of Ronald Reagan, who also proposed major tax, budget and regulatory reforms during his campaign.

"When Reagan took over, there was 'morning in America,' but I think that the stock market pushed the snooze bar and rolled over because over the next 18 to 20 months we were down about 25 percent, and then of course in August of '82 we took off," Brien said.

But strategist Steven Rees told CNBC the market's hope for 2017 is justified even that if Trump's proposals don't immediately pan out.

"Everyone's questioning, post the run, what do they do with their U.S. equity exposure? Our point is that we still see upside. The market has had a good run, we think a lot of that's justified given the earnings picture next year," Rees told CNBC.

Rees, who is global head of equity strategy at JPMorgan Private Bank, said he sees 8 to 9 percent earnings growth next year even without any reform coming from the new administration.

"That doesn't assume any of the Trump policy changes. We go through the tax plan, the repatriation, potential slight pickup in economic growth, that's another 8 to 9 percent on top of the core 8 to 9 percent that we're modeling," he said.

What's Rees' outlook for stock pickers?

"You're isolating more U.S. exposure, you're getting more cyclical exposure through financials, which we like, which are more susceptible to higher interest rates, and the earnings growth in small-cap next year could be north of 20 percent, so there's a good story next year. It has had a huge run so you need to be careful in terms of your entry level," Rees said.

He also said investors should not forget to look outside our borders.

"I would say don't count out the non-U.S. exposure. Everyone likes the U.S., it feels very consensus. That worries me," he said.

Rees said a potential next move could be "maybe not selling the U.S., but adding some short-term protection" like put options for early 2017, which allow investors to sell a specific amount of stock at a specific price and time.

Trading the Trump rally

Navellier & Associates' Louis Navellier said there's a real danger for a pullback.

"I think the market has grossly overreacted," Naveiller said on "Squawk Box." "You had the stocks with the worst earnings rally, and I think Caterpillar's the flagship. You have a company that has negative sales for four quarters in a row."

"They have beaten the analyst estimates, expectations are low, but they're not going to have positive results 'til 2018," he continued. "And we're going to go into earnings season and it's going to be time for earnings to do their thing again."

Navellier said that while he expects a pullback sometime around mid-February, analysts will likely not change their expectations until after the holiday season is over.

"In January they're going to start to revise earnings down for some of the multinationals that have this incredible currency headwind. The strong dollar does hurt the S&P," Navellier said.

As a cautionary measure, the mutual fund manager said it's worth picking stocks with minimal risk when it comes to any impending policy changes under the new administration.

"You want to be domestic, you want to be small cap, and you have to go into earnings season locked and loaded every time," Navellier said.