Barry Sternlicht, the founder of Starwood Capital Group, said investors are getting “somewhat cautious” as they wait for President Donald Trump to fulfill his campaign promises to lower taxes and reduce red tape.

"If we don't succeed, the backlash could be significant. It all really needs to succeed. I just hope [Trump] stays on the main script, which is the business script," he said on CNBC.

The S&P 500 surged about 12 percent to record highs after Trump won the November 8 election on a pro-business platform. While he has cut regulation and negotiated a trade deal with China, major reforms to the healthcare system and tax code are in the hands of legislators.

Sternlicht said investors may be waiting for more favorable capital gains taxes before selling assets. The Trump administration wants to cut the levy on dividends and capital gains from the current 23.8 percent to 20 percent by repealing the 3.8 percent investment tax imposed by President Barack Obama.

"If I'm an individual and I know my capital gains tax is going to drop I might just wait to sell stuff," he said.

Investors need more certainty on "the rules of engagement" before making big money decisions, said Sternlicht, chairman and CEO of Starwood Capital, which oversees $52 billion of assets.

He said to keep an eye on the signals from the bond market.

If traders were optimistic about Trump’s policies, the 10-year yield would move to 3 percent "pretty fast," he said. The 10-year Treasury yield was about 2.33 percent on Monday.

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