US Markets

Strategist: Pre-Trump, investors were already 'positioned for the Grinch to steal Christmas'

Election did not changed market trends already in place: Pro

Wednesday's market volatility that followed Donald Trump's victory was simply a knee-jerk reaction to an election that investors soon realized was already priced in, strategist Mary Ann Bartels said Thursday.

Stocks experienced what some called a Brexit-like drop followed by a timely climb that, for some stocks, neared all-time highs.

"Investors were positioned for the Grinch to steal Christmas," said Bartels, managing director and chief investment officer of Merrill Lynch's portfolio solutions.

In an interview with CNBC's "Squawk Box," Bartels said that ahead of the election, investors were already expecting an earnings trough, or transition toward expansion, before the end of 2016, and that won't change under Trump.

"They're waking up and realizing that trends have already been in place, that the election has not changed a pro-cyclical stance that's already been in place," she said.

Also on "Squawk Box," strategist Phil Orlando said that although some investors were hoping to see market lows similar to those seen in Brexit and benefit from a bounce, what happened was actually a best-case scenario.

Orlando, chief equity strategist at Federated, said that soon after Trump was announced the winner, investors began putting together how his presidency might benefit the economy.

"You've got the potential for tax reform, entitlement reform, infrastructure spending, more muscular defense, all of that's going to result in stronger economic growth, job creation, [higher] wages, corporate earnings," Orlando said.

"And ultimately the market has, in a very short amount of time, figured out that that's positive and gone the other way," he said.

Orlando added that after Trump's victory, investors momentarily lost sight of these benefits.

"The one thing I think the market … hadn't figured out up until yesterday was the difference between dynamic analysis and static analysis," the strategist said.

Static analysis was the conventional idea that "if we cut corporate taxes down 15 or 20 percent, if we cut personal taxes, then that's lost revenue," he said.

"What they didn't understand, is the stimulative effect of the economy from reducing those tax rates and creating stronger economic growth," he said.

As for the Federal Reserve's moves, both Orlando and Bartels echoed the widely held belief that it will raise interest rates in December.

"We're starting to get to the Fed mandates of full employment and inflation, and the bond market's starting to price that in," Bartels said.

Changes brewing on Wall Street

But a Fed rate hike may not be the most beneficial move for a market that has been anticipating one for this long, said Greg Fleming, senior research scholar and distinguished visiting fellow at Yale Law School.

Fleming told "Squawk Box" that while Trump and his advisors have been touting the prospects of pro-growth policies, tax cuts, repatriation measures and fiscal stimulus, a rate hike may prove to be a hurdle.

"I believe that we're doing that against the backdrop of a later-cycle economy where rates which should have been going up sooner are now finally going to go up. … Those two things are going to run against each other," Fleming said.

Given that the country is in year seven or eight of an economic cycle, he said, a push for growth and an overdue rate hike may not prove to be a great mix for particular areas of the market.

"The bond market yesterday said, 'We're going on our own. We're not waiting for the Fed. This is what we think is happening,'" Fleming said.

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