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.”
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.
“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.”
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.
The recent passage of Brexit by voters in the United Kingdom raised many questions and had far-reaching consequences. And despite our small footprint, Marin County potentially will feel the repercussions.
Some good; some not so good.
Nonetheless, whatever the local outcomes, they should make us realize that this is an interdependent financial world that we live in.
And all the more reason that such organizations as the Marin Economic Forum continue to be an important informational, networking and idea exchange.
Because we (and the North Bay region) have several companies that compete on a global basis, there are three immediate issues to contemplate: housing and financial market performance, shifts in tourism flows, and trade links to the UK as either a marketplace or a gateway to mainland Europe.
The Brexit decision assures that we are likely to remember 2016 as one of the most politically intense years of the century.
While our presidential election is slowly building to a crescendo in November, the UK vote to leave the European Union has already changed the scenario that whomever we elect will have to face.
Because the UK’s currency is the pound sterling and not the Euro used in EU countries, the unwind will be more about how currencies are trading for each other and less about compliance.
But the disconnect from trade and financial infrastructure based on EU membership will be a large enough headache.
Marin County, housing may be positively affected for two reasons.
First, the outflow of capital toward the United States from the UK will further reduce pressure on interest rates; the Federal Reserve knows this and may now further delay interest rate increases to prevent the U.S. from becoming a magnet for UK wealth seeking the slightest of interest rate gains.
Mortgage rates should remain stable and low, and housing demand will remain supported.
Those residents with global investments may find losses from emerging markets that have ties to the UK (e.g., Indonesia and Malaysia); countries like Japan may be financial beneficiaries although auto sales to the UK (and wine sales there for the North Bay region) may suffer.
For Marin County businesses, trade and labor connections to the UK may be delayed or hampered.
U.S. trade relations otherwise should be little affected.
Businesses such as Autodesk and BioMarin may need to consider the size and scope of offices and business branches in the UK if they are utilized to service Europe more completely.
This may slow progress in life sciences generally, especially if global uncertainty is exacerbated by this situation.
For tourism, we may see a flip of British tourism for Americans.
Marin County residents may now plan trips to London that they have delayed if the pound’s value falls significantly. For UK travelers, the opposite might be the case, reducing their visits to Marin County, wine country and the greater Bay Area.
Businesses in Marin County, such as hotels and B&Bs and restaurants, may hear fewer UK accents.
Under the assumption that global uncertainty ebbs a bit after the tidal wave of opinions and concerns is done crashing over news channels, Marin County should be economically good after this is all said and done.
The UK has multiple reasons to sort the aftermath out quickly, and allow us to prepare for November and more political zaniness.
Robert Eyler is dean of the School of Extended and International Education at Sonoma State University as well as the chief economist for the Marin Economic Forum.
The naming of the Marin Economic Forum’s new chief not only opens a new chapter for this important public/private partnership, but it also reinforces the Marin economy’s focus on building the county’s position as a center for the growing bio-sciences industry.
Jim Cordeiro recently took over as the forum’s chief executive officer, leading an organization the mission of which has been making sure that the economic health of our county is not left out of our decision-making process.
In recent years, the organization has been commissioned to do reports on the economic impact of Marin General Hospital, the economic benefits of the Marin Center complex, Novato’s role and position in the growing bio-sciences industry, Sausalito’s economic issues and the costs of homelessness in Marin.
These reports put important facts and figures on the table as local officials shaped plans for proposed buildings as well as long-term community planning goals.
The group has also promoted bolstering Marin’s standing as a bio-science center.
Fast-growing Bio-Marin and the important work of the Buck Institute for Aging Research are terrific cornerstones for building a center for an industry that likely won’t grow out of date.
Cordeiro, a scientist who had founded his own bio-tech company and has been active in the entrepreneurial community, should be a solid fit for the commission.