Neil Hennessy has a message for investors and their advisors: if you’re not invested in equities, “you’re crazy.”
The chairman and CIO of Hennessy Funds has another message for investors looking to get in early on the changes that President Donald Trump will bring to the economy and markets: Don’t even try. “I don’t know what he’s going to do,” Hennessy said Wednesday at a lunch in New York in which Hennessy and the asset management firm’s Cornerstone MidCap 30 fund manager, Brian Peery, spoke to reporters.
“Instead of guessing” what will happen under a Trump administration, Hennessy suggested that advisors “wait to see what actually happens,” then determine what, if anything, “to do with clients’ portfolios.” He also hinted that president-elect Trump’s tweet criticizing Boeing’s “$4 billion” Air Force One contract was not tone-deaf at all but rather played well among Americans who voted for him, saying “$4 billion may not sound like a lot of money here in New York, but it sounds like a lot in Wichita.”
Returning to his market commentary, Hennessy argued that there is still “$4 trillion sitting in fixed income mutual funds,” with additional trillions in money market accounts. But with the Dow industrials’ “yield higher than 10-year Treasuries,” when investors start to move off the sidelines, “where will they go?” The wise answer will be to equities, Hennessy said, only half-joking that “if you’re not in equities you’re crazy.” He suggested that some of that money will start moving after the Federal Reserve’s Open Market Committee meets next week and raises rates, but another calendar occurrence may have a bigger impact. That’s when individual investors will open up their year-end investment account statements and see losses in the fixed income portion of their portfolios, he predicts.
As for those market watchers who fret that the now nearly eight-year old bull market is getting long in the tooth and may end soon, Hennessy wondered “Why?” Since either fear or euphoria tend to be the biggest market movers, “there’s no euphoria to end this market.” Moreover, he expects President Trump to be “friendlier to business” than President Obama, and that corporate profits have been “steadily up” over the long term, even facing the headwinds of “regulation, health care and (high) taxes.” If even one of those three impediments to corporate and economic growth lessens in the new administration, he expects corporate profits to rise and economic growth to at least continue at its current pace.
Hennessy’s bullishness is also supported by the decrease in unemployment, initial jobless claims and the “dramatic” drop in the U.S. underemployment rate. He’s heartened as well by the recent rise in wages, and thinks American consumers have learned their lesson since the global financial crisis. While consumers’ personal consumption has risen for 21 straight months, they are also “doing a great job managing their debt and [other] liabilities.” Another good sign for investors and American economic strength: since the financial crisis, “the banking sector is the healthiest it’s ever been.”
As for the overall market, Hennessy dismisses the idea that the market is overvalued and ready for a correction, citing the Dow industrials’ P/E hovering around 20 (21.8 as of Dec. 8), compared with a 44 P/E ratio for the Dow right before the dot.com crash. Finally, with the DJIA at 19,667 (again as of Dec. 8), Hennessy suggests that we’ll hit the 20,000 mark for the Dow, “and go a heck of a lot higher.”
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