Trade represents a real risk to the global economy and markets, but the greater and more likely risk stems from monetary policy, strategist David Lebovitz told CNBC on Thursday.
He expects the Federal Reserve to hike rates a total of four times this year, and possibly another three times next year depending on inflation. The Fed already approved one quarter-point hike, in March.
"For investors that have become very accustomed to low interest rates and excess liquidity, the tide really is beginning to change," said Lebovitz, global market strategist at J.P. Morgan Asset Management.
"This is an economy which is late cycle and inflation is being driven higher, not only by higher wages but by fiscal stimulus as well."
It was concerns about a trade war that weighed on the market Thursday. Stocks fell after President Donald Trump said he doubts ongoing talks between the U.S. and China will succeed. Observers are hoping the negotiations will avoid major tariffs proposed by both countries.
Lebovitz thinks cyclical stocks will outperform over the short to medium term, despite the risk he sees ahead. He specifically like financials, technology and energy.
"With fiscal stimulus in the U.S., the economy is going to keep growing at least until the middle of next year at an above-trend rate," he said.
"That above-trend growth should put further downward pressure on the unemployment rate, leading wage growth to pick up and subsequently leading the Fed to continue hiking rates. To me that is a very robust late-cycle environment."
However, in about 12 to 18 months Lebovitz would start to get a "bit nervous" and perhaps take some chips off the table.
— CNBC's Jacob Pramuk contributed to this report.