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The market has stalled, but millionaire stock investors aren't bailing on Trump

Donald Trump
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Donald Trump

The post-election euphoria has given way to a month of the market going nowhere. So what's an individual investor managing their own money to do?

Diverging views from billionaires on a Trump stock strategy aren't much help. Liberal icon George Soros still thinks his uber-pessimistic Trump short will be proved right. John Paulson — who was right about the "Big Short" — has increased his long exposure. And eternal America optimist Warren Buffett — being Buffett — told CNBC on Friday that the United States will be just fine under Trump, though he has no idea where the stock market will go in the next 10 days or two years.

A look at how average, ordinary millionaires who manage their own stock portfolios are investing might offer better advice.

They aren't showing signs of doubt, according to results from an E-Trade Financial survey conducted this month and provided exclusively to CNBC. These investors who manage at least $1 million in their brokerage accounts are not exuberant, but they remain moderately bullish on the U.S. economy. And they are even more bullish on the stock market, even if they don't expect a major move up in the first quarter and do expect the Federal Reserve to raise rates several times this year.

Only 10 percent of millionaires said they plan to move out of market positions and into cash as Donald Trump takes office.

Giving the economy a grade

"When they look at the landscape available to them, they still view stocks as the best bet," said Mike Loewengart, vice president of investment strategy at E-Trade. For most investors, it's a choice between equities, bonds, real estate and cash. "These people are experienced investors and recognize the stock market doesn't move straight up. What I see is cautious optimism," Loewengart said.

When asked how they would grade the U.S. economy, more than half of millionaire investors give the country a B. Only 5 percent give the economy an A. But only 23 percent of millionaire investors said their feelings about the future of the U.S. economy are pessimistic since Trump was elected.

When asked if the economy is healthy enough for the Fed to raise rates, only 20 percent of millionaires "strongly agree," but 56 percent "somewhat agree." Only 9 percent of millionaires disagreed with the Fed raising rates. The survey showed that they expect two rate hikes (61 percent) or three rate hikes (19 percent) this year, consistent with the market consensus.

The millionaire view of an economy that is working, if not firing on all cylinders, translates into expectations of a stock market that will gain, but may take its time.

Seventy-three percent of investors with more than $1 million in a brokerage account described themselves as "bullish" about the current market (higher than the 65 percent of all investors surveyed that are bullish). But their view on first quarter gains is less enthusiastic than all investors surveyed by E-Trade (including those with at least $10,000 in an account).

Only 42 percent of these millionaire investors think the market with end the first quarter 5 percent higher. Even less, only 8 percent, see a gain of 10 percent. The combined 41 percent of millionaires who think the market will "basically stay where it is" (24 percent) or drop by 5 percent (17 percent), matches the 42 percent who think stocks will rise by 5 percent.

"They don't expect quick gains," Loewengart said.

Sector bets

This view is leading millionaire investors to keep market bets focused primarily on sectors that they think will do well and benefit from Fed rate hikes. In essence, it's the same view that led the post-election November rally that is still prevailing among investors in January, even as the market stalled.

Sixty-six percent said financial stocks will benefit from a Trump presidency — the highest sector confidence in the survey — followed by industrial stocks at 60 percent.

The sectors that are the most-sensitive to rising interest rates are in the millionaire doghouse. Less than 15 percent of these investors said utilities, consumer staples and telecom will benefit. Technology and consumer discretionary also fell within the same sector losers' group.

"There is no shortage of impact the decreased regulation will give to financial firms, as well as rising rates," Loewengart said, adding that financials have been depressed and beaten up for a long time and were largely left out of the stock market recovery post-crisis.

Meanwhile, the big dividend payers — utilities, staples and telecom — are now losing out as investors weigh the cost of seeking income from stocks when rates are going up. Loewengart said there will be volatility in bonds, but the case in recent years for taking equity market risk in the search for income is much less compelling now; so investors are stepping away from "bond-like equities."

Survey methodology: The survey was conducted from January 1 to January 10 of 2017 among an online U.S. sample of 904 self-directed active investors who manage at least $10,000 in an online brokerage account. The data on investors with at least $1 million in a brokerage account is provided exclusively to CNBC. The survey has a margin of error of +/-3.18 percent. The panel is broken into thirds of active (trade more than once a week), swing (trade less than once a week but more than once a month) and passive (trade less than once a month).