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This is the biggest factor in the next leg of rally, and it's not the Fed, strategist says

VIDEO4:3104:31
This is the real key to new highs for stocks—and it's not the Fed

All eyes are on the Federal Reserve this week heading into its big rate decision Wednesday afternoon.

While investors are watching that major market event, one portfolio manager is looking ahead to another factor that will drive what he sees as the next leg of this record-breaking rally.

"In order to get meaningful upside into 2020 ... it has to be done on the earnings side now and so everything is really about that 2020 earnings number," Steve Chiavarone, portfolio manager at Federated Investors, said Friday on CNBC's "Trading Nation. "

Analysts anticipate blended S&P 500 earnings to expand 3% this year, accelerating to 11% growth in 2020, according to FactSet estimates.

That's not to say earnings are the be-all and end-all to markets, though, adds Chiavarone.

"There's three things you need to look at. There's the Fed and how well they negotiate [this week] — not just on whether or not they cut but what the path is going forward because the market is not just looking for one and done," said Chiavarone. "Trade is the obvious second one and whether or not we have to contend with a second tranche of tariffs, and then the earnings season itself."

Until he gets clarity on earnings season, the Fed and trade, Chiavarone has trimmed his overweight equity position to 3% from 8%. He maintains a 3,100 year-end price target.

Investors head into the Fed's July meeting with the near certainty of a rate cut. Fed fund futures are pricing in a 73% chance of a 25 basis point cut and a 27% chance of 50 basis points, according to the CME Group.

With those high expectations for looser monetary policy, Bill Baruch, president of Blue Line Futures, is making a call in the Treasurys market.

"With the Fed cut priced in, one thing you have to keep your eye on here is the 10-year yield. It's at 2% here right now and that's a big floor," said Baruch. "We have a great opportunity to sell Treasury prices and I'm going to use the 30-year bond to do that because you have more volatility in the 30-year bond compared to the shorter end."

Baruch sees longer-term bond prices moving higher and a bottom forming in yields. To trade on that expectation, he is buying the Treasury bond futures 150 puts with December expiration. At the time of his trade, it was trading at 154.

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