US Markets

The market's short, but the 'right spark' could push it even higher

Bull market goes into the 8th year: Pro

Investors betting against the market have created an environment in which markets could take off even more than they already have under the right conditions, BMO Interest Rate Strategist Aaron Kohli told CNBC on Thursday.

Kohli told CNBC's "Squawk on the Street" that the market is currently "very short." By that, the strategist meant that investors are making bets on sectors or stocks whose profits could be hurt by what might occur in 2017, like rate hikes by the Federal Reserve.

"I think investors have broadly bought into that belief that rates are going up, and as a result, they've been willing to bet against the market quite easily, and that gives you the potential for a very strong rally if the right spark emerges," Kohli said.

Conversely, if there were to be a negative surprise in 2017 or the Trump administration is unable to make good on its economic promises, that could effect markets just as detrimentally on the other side, the strategist said.

"If there's any sort of hitch in delivering, if there's any sort of political issue, or if any of the other … extreme political projections that we've been talking about, either a trade war or any other sort of conflict, [start] to arise, I think you could see yields drop very quickly with very little stimulus," Kohli said.

Cashin: Still waiting on new administration

Investors still have to wait and see whether any hiccups or threats arise in the Trump administration's early days, but as more of the camp's plans come to the fore ahead of Trump's inauguration, Art Cashin told CNBC there could be some points of entry into the market.

"You can't rule out the fact that we're still waiting to find some things out about the new administration. How soon will they be getting some of these programs that they're talking about?" the UBS director of floor operations at the New York Stock Exchange said Thursday.

"We're going to be seeing hearings on some of the nominees even before the inauguration, so if you're thinking of January pivot points, there are a couple right out there that could change things around," Cashin told "Squawk on the Street."

But the bull market isn't going anywhere, at least not according to Hank Smith, vice president, co-chief investment officer and director of Haverford Quality Investing.

"Bull markets ... don't die because of geopolitical or exogenous events. They die and cede to a bear market almost always in anticipation of a recession." Smith told CNBC. "And I think that is a fairly safe forecast for 2017 that there is not going to be a recession materializing, even well into 2018."

However, part of the excitement surrounding the "Trump trade" is what has not worked, so investors would be well served to diversify their portfolios considerably among the sectors that are benefiting the most from policy expectations, Smith said on "Squawk on the Street."

"I think you still want a balance between offense and defense, financials, industrials, but also consumer staples and health care as well," Smith said. "We would avoid utilities. The strict yield plays, we think, are going to be challenged going forward."