Marin financial experts eye rising stock market, Trump impact

Trump stock markets

By Adrian Rodriguez
Marin Independent Journal

Financial advisers in Marin say it’s a good time to review investments, as Donald Trump’s victory in the U.S. presidential election appears to be signaling a strong stock market.

“If you’re not investing, you should be putting your toe in,” said Neil Hennessy, CIO of Hennessy Funds in Novato.

Since Nov. 8, the stock market has seen some ups and downs, rising to record numbers last week. Investors nationwide have been betting that with Trump in office, and with a Republican-led Congress, there will be a push to deregulate energy and banking, cut taxes and increase government spending on infrastructure, making it the opportune time to invest and buy stock in the financial and commodities sectors.

However, Hennessy said investors should pay less attention to what might happen in a Trump administration and focus on the fact that “business is very resilient,” and that “everything points to a higher market” because of that.

“The most important thing is there is no euphoria in the market place today, either on the greed side or the fear side,” he said. “As that continues, business will continue to do well.”

Hennessy recommends that investors trade out of fixed-income investments and focus on high-quality dividend-paying stocks, which he thinks will be rewarding. If there are tax cuts, the benefits could be greater, he said.

Robert Eyler, chief economist for the Marin Economic Forum, said it makes sense in the short-term to invest in commodities, such as energy, specifically oil, and in finances.

“That’s where you’ve seen all the activity in the past three weeks,” he said, “because those are the kind of industries that got a boost.”

SHIFTING STRATEGY

Stocks have slowed since hitting record numbers just before Thanksgiving. Stocks moved mostly lower Wednesday as gains in blue-chip energy companies and banks were not enough to make up for losses in the broader market.

The bond market took heavy losses, with the 10-year U.S. Treasury note rising to its highest level in a year and a half. The higher yields sent bond substitutes like utilities, telecommunications and real estate stocks sharply lower.

Oil stocks climbed after OPEC nations, which collectively produce more than one-third of the world’s oil, agreed to trim production for the first time in eight years.

Trump’s election has sent investors fleeing out of safe-play assets like bonds, gold and dividend-paying stocks this month and into riskier investments like small companies, which would benefit the most from a growing domestic economy.

The Russell 2000 index, which is made up of mostly small- to mid-sized companies, soared 11 percent in November. That’s the biggest one-month gain for that index in five years.

Investors believe Trump’s promises to cut taxes, invest heavily in infrastructure and cut back regulation will help grow the economy and might even cause inflation, which has been almost non-existent since the financial crisis. U.S. government bonds quickly become less appealing to investors in a healthy, growing economy and in an inflationary environment.

DRASTIC CHANGES

“We have elected a pro-growth president who is going to move very quickly to make some drastic changes, and investors are trying to figure out what to do with that,” said Tom di Galoma, head of Treasury trading at Seaport Global Holdings.

Di Galoma said he sees the 10-year note’s yield hitting 3 percent by year end, a level not seen in nearly three years.

But for those investing for the long term, classic technology and biotechnology could be the way to go, Eyler said.

He warned that some of the potential for profit in the commodities and financial sectors may have already been eaten up with the excitement since the November election. He also advised investors to note that the economy has been on a demand-side growth pattern for nearly seven years, which he says “is almost the longest economic recovery in the last 100 years,” and that the economy is still waiting for a “supply-side boost.”

James E. Demmert, founder and managing partner at Main Street Research, a Sausalito-based investment and wealth management firm, said “Trump came along at the right time,” because “his presidency coincides with the beginning of a new business cycle or a re-acceleration of corporate profits.”

Demmert agrees that investment in materials and the financial sector — including local banks — is wise, adding that industrial and health care would be good strategies as well.

“One thing I think investors should think about is what they do about interest rates and bonds,” he said. “Interest rates are headed up and investors should be very careful when that happens — as they will teeter-totter. If you own bond funds, that can be devastating on maturity dates.”

BOND HOLDINGS

Bob Hunter, principal and founder of Marin Wealth Advisors in San Rafael, said in an email on behalf of his firm that expectations of a more favorable corporate regulatory and tax environment should be an incentive for companies to invest in plants and equipment, further boosting the economy, and again helping jobs and wages.

“Given our sense that economic activity could accelerate, resulting in higher wages and commodity prices, we are reviewing our bond holdings, especially maturities, as increased inflation usually leads to lower bond prices,” he wrote. “Regarding equities, we feel stocks in general are historically in the fully valued range on an earnings basis, but expectations of higher earnings and money flowing out of bonds should help to support current stock prices. It’s a good time for investors of all sizes to review their investments, including 401(k) plans, for under performers and duplication.”

Geoff Hakim, founder of Marin Capital Management, a Novato-based firm specializing in alternative investments, is skeptical of the recent stock market activity.

“The stock market is rarely based on reality and it’s always based on expectations,” he said. “What we’re seeing from this last month or so is basically people hoping that having Trump in there will improve the economy. We are going to have to wait and see.”

Hakim argued that the bond market is in the worst place it’s been for years and that “instead of being subject to all of the massive volatility that stocks go through,” he and his firm recommend hedge fund investment.

“The client ends up with a lot more money in their pocket when they go that route,” he said.