“When you have problems like this, you have to go back to first principles and say, ‘What’s really changed?’” Trennert said. “I don’t think a lot has changed. The economy, if anything, is a little bit stronger. Three months ago, people were worried about a recession. Now, people are worried about an economy that’s too strong. The punch line: The Fed is not going to tighten again. The Fed’s tightening cycle is over. If anything, they’re more likely to ease. The liquidity situation is still very positive for this market.”
He said the market could move lower in the near-term, but noted, “I wouldn’t mind seeing prices lower because I’d be a big buyer.”
Trennert said share buybacks continue to shrink the numbers of shares available to investors while new cash flowing into private equity funds continues to grow.
“The supply and demand couldn’t be much better,” Trennert said.
He’s underweighted in discretionary, industrials and telecom. He suggested investors look closer to home for winners.
“I think people are too bullish on developing markets -– emerging markets -– and think there should be a big asset allocation trade away from India and China, toward the U.S., Japan and Europe,” Trennert said. “Japan, the reason I’m bullish, is that it hasn’t participated (in the recent rally). Also, they’ve changed some rules recently that make change of control much easier. Private equity (in) Japan would be a dream.”
He said Japan’s economy and demographics “aren’t great,” but potential management changes “are positive.”