The stock market has been anticipating a partial trade agreement between the U.S. and China but not the possibility of tariff removal, Strategas Research Partners Chairman Jason Trennert told CNBC on Thursday.
"Some sort of rollback of tariffs that have already been established is not priced in," the strategist said on "Closing Bell." "And that's part of the reason why I think there could be a change " of sectors leading the market rally.
Trennert said he believed cyclical stocks in particular could be the sector to drive the market higher, saying they could end up "picking up the slack and continuing to do a little better since they have in September."
To that end, Trennert said his firm has shifted its sector allocation to be "significantly more towards" cyclicals, such as financials and telecommunications.
"We're really betting on a bottom in global economic growth," Trennert said, arguing that an agreement between the U.S. and China would likely lift companies with overseas exposure.
Around 40% of profits in the S&P 500 come from outside the U.S., Trennert noted.
Trennert's comments were in response to news that the Trump administration has agreed in principle to a partial trade deal with China, pending President Donald Trump's approval, CNBC reported earlier Thursday.
Trump planned to meet with top advisors Thursday afternoon to discuss trade with China and whether to delay the next round of U.S. tariffs. Duties of 15%, set to take effect Sunday, would affect about $160 billion in Chinese-made goods, including toys, computers, phones and clothing.
The White House has offered to cancel those levies and cut in half some current tariffs, two sources told CNBC. The U.S. proposed cutting existing duties on $360 billion in Chinese products by 50%.
Washington and Beijing have placed billions of dollars of levies on each others' imports as part of a long-running trade war that has weighed on global growth.
The three major indexes all touched intraday records Thursday, their first since Nov. 27.
The S&P 500 closed at a record high on Thursday, gaining 0.9% to finish the session at 3,168.57. The Nasdaq Composite followed suit, registering its own all-time closing high by adding 0.7% to hit 8,717.32.
The Dow Jones Industrial Average closed up 0.8%, at 28,132.05.
— CNBC's Jacob Pramuk and Kayla Tausche contributed to this story.
