US Markets

Portfolios are 'way too defensive' for 2017's bull market, strategist says

Rally in its first innings: Lehmann
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Rally in its first innings: Lehmann

The U.S. economy is on a new path toward growth thanks to an improved outlook on favorable policies for businesses and an overall uptick in optimism, strategist Doug Cote told CNBC on Monday.

"I'm bullish because we're on a new path. I call it the growth and reflation trade," Cote told "Squawk Box."

"We're already seeing the acceleration in corporate profits, broadening in manufacturing, the consumer continues to do well, developing economies around the world are doing well. Add to this some pro-growth economic policies and you have the reflation trade," the chief market strategist at Voya Investment Management said.

But it's not only pro-growth policies in the United States that investors should be watching, Cote said. "It's more important to talk about the whole portfolio," he said.

"Everyone's way too defensive. I think you need to broadly diversify your portfolio across global stocks and global fixed income," he said.

The biggest risk at this point is the U.S. dollar's strength, according to Cote. He said it must stabilize, and it will, as long as the Federal Reserve keeps a close eye on its volatility and President-elect Donald Trump's proposed tax and fiscal policies are implemented correctly.

"If you don't do spending cuts, if you don't get the budget under control, then these tax cuts are for naught. It won't be credible," Cote said. "You just can't do one side."

Appearing in the same interview, Mark Lehmann, president of JMP Securities and a fellow 2017 bull, told CNBC that he thought the postelection rally was just getting started.

"Obviously, we've seen a big ascend since the election, but I think it's in its first innings [and] it's still going to continue through the inauguration," Lehmann said.

Between wary investors still on the sidelines, capital moving into mutual funds, which diversify investors' portfolios, and people being generally underexposed to equities, there is ample room to run into 2017, Lehmann said.

"Couple that with an IPO market that'll be more fervent than we've seen this year, and I think you're setting up for a very nice start to 2017," he added.

Banks in particular will enjoy a great year next year, according to Lehmann. "I think you are going to see more capital flow into them, I think you're going to show a lot of foreign investors coming to the banks, and I do think the wind is at their backs," he said.

"When you see dividends, which we haven't seen for some of those stocks in a long time, I think you're going to see more people exposed to that sector," Lehmann said, referring to a company's payout to its shareholders.

What's Working: Utilities and telecom
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What's Working: Utilities and telecom

But the financial sector isn't the only one that will benefit from the new administration's policies, Aureus Asset Management's chairman and CEO, Karen Firestone, told CNBC in a separate interview Monday.

"If we're looking at utilities … I like Charter Communications," she told "Squawk Box." "It's an interest rate play, it's a financial, it's a little late to the party, but you've got a lot of things working."

Lately, Charter's margins have improved and the cable and telecommunications company has restructured and bought back some of its stock, all signs of a promising turnaround, especially "in a sector where the fundamentals are moving in the right direction," Firestone said.

She added that Charter also has an advantage in a time where content creating platforms are becoming increasingly popular.

"Charter we like particularly because it does not create a lot of content. Charter is a business of distribution, and Charter has the advantage of buying product cheaply when there's a lot of available product," she said.

Another big name on Firestone's list is industrial giant Harsco, which the CEO said would benefit from any kind of infrastructure spending coming out of Washington.

"Think about it: it's in mining and materials, it's an industrial, and they serve the rail industry. So all of those are positioned to have some growth over the next several years," she said.

"We're seeing industrial production beginning to pick up, commodity prices are improving, energy we know is on an upswing, and Harsco will benefit," she added.

Firestone said that Harsco has also gone through restructuring and revised its multiyear outlook to show growth at more than six times its earnings before interest, taxes, depreciation and amortization, or EBITDA, which is a calculus of a company's operating performance.

"We see [Harsco] as a potential acquisition candidate," she said. "It still has a long way to go."

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