"The 'shock and awe' upside scenario involves rescinding all US-China tariffs instantly, causing certain tariff-sensitive firms to raise 2019 guidance, while the Fed commits to keeping reserves at ~$1.3T+. If all this were to come to pass, then the SPX will easily make a run towards 3K," wrote J.P. Morgan's executive director Adam Crisafulli, in a note to clients.

That would represent a 7 percent gain from where the market was trading Wednesday. The S&P 500 closed Wednesday at 2,792, down a point.

The Trump administration and the Federal Reserve together could spark a "shock and awe" rally in stocks that would take the S&P 500 to the 3,000 level, according to a J.P. Morgan executive director.

Bank reserves are a portion of the Fed balance sheet and are currently about $1.6 trillion. That is the portion of the balance sheet that is is rolling down as part of its normalization process, and traders have been looking for detail on what level the Fed might stop the program.

President Donald Trump has indefinitely held off on new tariffs on Chinese goods that he had threatened for March 1 because trade talks are progressing toward a deal. However, analysts have said if he does not remove existing tariffs, the market will react negatively to any deal since tariffs have been hurting earnings and the economy.

"Fundamentals argue for the former as the three big stock tailwinds (the Fed Pivot, better earnings, and easing China trade tensions) are largely embedded within the SPX at current levels. There are scenarios whereby these issues could still surprise on the upside but the odds of them unfolding don't seem great," he wrote.

He noted that Powell said the Fed this week that the Fed could conclude balance sheet normalization at $1 trillion in reserves, plus a buffer.

Crisafulli said that investors are wondering whether the S&P 500 will have a long pause below 2,800 or break out in another leg higher towards 2,850.

But he noted the S&P is likely to consolidate the recent rally within the 2,750 to 2,800 range, until the Fed clarifies details of its plan for the balance sheet.

"Bottom Line: the Fed balance sheet specifics remains the next big macro event for US equities but this probably won't arrive until the 3/20 meeting/press conf.," Crisafulli wrote.

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