Higher rates will lead to better earnings, analyst says

Ellison: If rates move higher, stocks will do better

With President-elect Donald Trump's inauguration less than a day away, investors are anxiously waiting to see what new regulations could influence bank outlooks.

However, for David Ellison, a portfolio manager for Hennessy Large Cap Financials Fund, he's more concerned with rates changing.

"Companies are earning good money now, and there is tremendous amount of money to cut costs and right-size the business. You built the business on a 30-year decline in rates," Ellison told CNBC's "Closing Bell" on Thursday. "That's why they're so big, because the asset prices always went up. Now you're going to build a business on flat to up rates, which means a totally different business and that's what we're moving towards."

Ellison said he believes that higher rates could lead to better stocks in the future.

"If you have rates move higher, the stocks will do better and earnings will go up because the core business will get better," Ellison said. "Doesn't matter what regulation happens, doesn't matter what happens with credit, it matters with rates. This is a rate play."

But in regards to regulation, Ellison doesn't support repealing the Dodd-Frank Act like several others on Wall Street are advocating for the Trump administration do. Instead, he hopes the reforms and policies will be just be "incremental changes."

"I think we've had a lot of new regulation the last five or six years. A lot of it has been good, some of it maybe has been a bit of overreach," Ellison said. "I'm not a big fan of going back to where we were, certainly because i don't want to go through '08, '09, and '10 again. I think whatever they do, I hope they slow the process down, let people digest it and make incremental changes that are really just tweaking it."

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