There is a 'much bigger issue' for the market than trade: Analyst

  • Pro-inflation policies coming from Washington, D.C., are causing trouble for the market, says Richard Bernstein.
  • "There is a major sea change going in the backdrop where we're going from a disinflationary environment to an inflationary environment," he says.
  • Bernstein says over the last three to four months, almost every sizeable market sell-off has come from those pro-inflation policies.

There is a "much bigger issue" for the market than concerns about trade, investing expert Richard Bernstein told CNBC on Tuesday.

In fact, over the last three to four months, almost every sizeable market sell-off has come from pro-inflation policies out of Washington, D.C., the CEO and chief investment officer of Richard Bernstein Advisors said.

"There is a major sea change going on in the backdrop where we're going from a disinflationary environment to an inflationary environment," Bernstein said on "Closing Bell."

"We have tight labor markets, we have tight product markets because the economy is strong. We just got tax cuts on top of that. We're now getting fiscal spending," he added.

In addition, there are trade issues and immigration restrictions in play now.

"They are all pro-inflation policies and that's the big issue in the background here," said Bernstein.

U.S. stocks dropped Tuesday as fears of a trade war increased. The Dow Jones industrial average tumbled 287.26 points to close at 24,700.21, erasing all of its gains for the year.

The action came after President Donald Trump said late Monday that he asked the United States trade representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10 percent. Beijing has pledged to fight back.

It was the latest salvo in escalating trade tensions with China. On Friday, the U.S. announced a 25 percent tariff on up to $50 billion of Chinese products. The Asian nation then said it would slap retaliatory tariffs on $34 billion worth of U.S. goods.

James Bianco, president of Bianco Research, told "Closing Bell" that right now the markets are suggesting that the U.S. is going to win any protracted trade war.

That's because the U.S. stock market drop wasn't as large as the one in China, he said. On Tuesday, the S&P 500 closed down 0.40 percent, while the Shanghai composite fell 3.82 percent.

And while there is the "nuclear option" of the Chinese deciding to sell their U.S. Treasurys or devalue their currency, neither one of those markets are acting like that's a viable option right now, he said.

"For the moment, the president seems to have all of the cards and the Chinese are trying to play along," Bianco noted.

Earlier in the day, Goldman Sachs CEO Lloyd Blankfein weighed in at a luncheon interview at the Economic Club of New York, saying he didn't think the two countries would mutually destroy their economies.

"I don't think we're in a suicide pact on this," Blankfein said.