Wilmington Trust's chief economist believes the market rally's foundation is on shaky ground.

With the seeing its best June since 1955, Luke Tilley warns that investors are getting excessively optimistic on U.S.-China trade talks and Federal Reserve policy.

"Equities should do well in an environment where we get a trade deal and where we get the Fed cutting rates. But neither of those things are a done deal yet," Tilley said Monday on CNBC's "Trading Nation."

Tilley, who is on Wilmington Trust's investment strategy team and is a former economic advisor to the Philadelphia Fed, believes the central bank will cut rates by a half point in July — which is on the high side of Wall Street estimates.

"At this point, we think it's pretty much baked in that you're going to get those rate cuts on July 31," said Tilley. "The data is slowing down enough to merit what the Fed has done. And, that's to project that you get that rate decrease."

It may be bullish for stocks, but he's hesitant to turn positive.

He contends a lot is at stake for Wall Street right now as President Donald Trump and Chinese President Xi Jinping get ready to meet this week at the G-20 summit. If their talks suffer a critical setback, Tilley predicts the record rally will fold.

"It really comes back to the trade and tariff. That is really what we need to watch," he said. "We had been at Wilmington Trust overweight U.S. equities for several years — up until that first week of May when the trade discussions sort of broke down."

On May 5, Trump threatened new tariffs, sending the market into a tailspin. Even though stocks have rebounded, Tilley hasn't been in a rush to put new money to work.

"We're recommending to our clients, and we've positioned ourselves to wait and see which way that situation breaks," Tilley said.