U.S. equity markets could tumble by up to 10 percent if investor hopes for corporation-friendly reform fail to translate into legislation, according to Blackstone Group Vice Chairman John Studzinski.

The veteran financier, who joined Blackstone in 2006, advised watching President Donald Trump's progress in getting approval for his key platform initiatives from U.S. Senators between now and the summer recess during which Congress closes for the month of August.

"We'll have a better indication by the August recess whether he's going to actually accomplish something or not," Studzinski told CNBC's Squawk Box on Monday.

"If by the middle of August nothing happens - and I doubt it will - then you'll see the stock market react with even greater caution than it has now," he added.

As the debate continues to rage over whether valuations for U.S. equities have overshot, Studzinski says it is important to watch the level of investor uncertainty around legislative changes given the potential for a "major re-rating" of shares should it develop.

On that note, the senior Blackstone executive pointed out in a conversation with CNBC on Friday that it is important to remember that volatility has gone up and should be closely watched. On the other hand, interest rates are not what investors are focused on, despite a growing consensus that a couple more rate hikes will be implemented before year end.

Indeed, looking at the impact of legislative matters on market behaviour, equities reacted poorly to the recent failure of Trump's team to secure sufficient support in the House and Senate to repeal 'Obamacare' (the healthcare program pushed through under former President Barack Obama) and the consequent forced withdrawal by Republicans of their healthcare bill.

However, a relief rally of sorts trickled through the following day, with some market participants and media sources attributing the uptick in stocks to a perception that the Trump team's willingness to shelve the healthcare bill for now demonstrated its appetite for focusing on tax reform – an issue to which financial markets are notably more sensitive.