Investors are dangerously belittling trade risks, Invesco warns

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No deal? Invesco warns US-China trade talks will likely fail

Invesco's Kristina Hooper warns there's too much complacency on Wall Street surrounding trade between the U.S. and China.

With Presidents Donald Trump and China's Xi Jinping scheduled to meet Saturday at the G-20 summit, she believes investors are dangerously overestimating the odds of a trade deal.

"The rhetoric coming out of China has changed a lot. China is digging in its heels," the firm's chief global market strategist told CNBC's "Futures Now" on Tuesday. "So, unless the U.S. is willing to take minor concessions around narrowing the trade deficit, I don't think we're going to see a deal."

She spoke a day before Treasury Secretary Steven Mnuchin voiced optimism in a CNBC interview that progress can be made during weekend talks between President Donald Trump and China's Xi Jinping.

According to Hooper, the sides are too far apart to count on getting a resolution at all this year, and it's setting the market up for trouble.

"We could certainly see a 5% or so pullback — maybe a little more," she said.

On Tuesday, the Dow saw its worst drop of the month. It fell 150 points after Fed chief Jerome Powell indicated a rate cut isn't a done deal. The S&P 500 lost just under 1% to close at 2,917.

Hooper, who has an S&P 500 year-end price target range of 2,850 to 2,950, sees the Federal Reserve stepping in to mitigate the damaging effects of the ongoing trade war on economic growth and corporate America. Hooper is still predicting the Fed will cut interest rates by a quarter point at its July meeting.

"The reality is the Fed is a powerful force, and it's signaling that it is willing to get a lot more dovish," said Hooper. "[It] really does place an important safety net under stocks."

However, she doesn't see stocks responding by ripping higher.

"We're likely to see volatility, short-term sell-offs," Hooper said.