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Top strategist Jason Trennert says the Dow may keep Trump on the right track

  • "The equity market could be the vigilante in terms of getting stuff done," said Trennert. "Especially with this president, who seems to be obviously very focused on the Dow Jones industrial average."
  • Trennert is the founder of Strategas Research Partners, a leading brokerage firm focused on providing macro research to debt and equity investors.
  • Trennert also explained why active portfolio management may see a resurgence.
Jason Trennert, chief investment strategist at Strategas Research Partners.
Daniel Acker | Bloomberg | Getty Images
Jason Trennert, chief investment strategist at Strategas Research Partners.

Top Wall Street strategist Jason Trennert said that the equity market may be just the "vigilante" needed to discipline President Donald Trump and policymakers in Washington toward legislative reform.

Trennert is the founder and a manager of Strategas Research Partners, a brokerage firm focused on providing macro research to debt and equity investors. CNBC's Mike Santoli spoke with Trennert in an exclusive interview for CNBC PRO. Santoli asked him about what the market needs to keep climbing.

"The equity market could be the vigilante in terms of getting stuff done. In the 80s, you used to talk about the bond market vigilantes who would actually impose some discipline on policymakers if you started going crazy as far as the deficit were concerned. Now because of QE and all the rest of it, it's harder for the bond market to fill that role. But the equity market could very much fill that role, especially with this president, who seems to be obviously very focused on the Dow Jones industrial average."

President Donald Trump frequently takes credit for the string of records set by the Dow Jones industrial average since his election in November, possibly leading the commander-in-chief to partner with his rival faction last week.

After months of fruitless banter on Capitol Hill over health care, Trump broke with his party on Wednesday and agreed to back a short-term debt ceiling extension and government funding measure Republican House Speak Paul Ryan deemed "ridiculous."

Following the announcement of the uncommon bipartisan agreement, U.S. stocks jumped higher, possibly acting as the "vigilante" Trennert described, suggesting to investors that political progress may not be too far-fetched.

As Strategas' chief investment strategist, Trennert is known as one of Wall Street's top strategists on the subject of markets. Prior to founding Strategas, Trennert was the chief investment strategist and a senior managing director at ISI Group. He is the author of three books on investing and the culture of Wall Street, including his most recent, "My Side of the Street."

Trennert also explained why active portfolio management may see a resurgence.

"[Passive management] is prudent, but not devoid of risk. There's largely one factor that drives a lot of the passive strategies and that's size. Especially if you're looking at the S&P 500. That has a tendency to self-reinforce some of the valuation problems with some of the larger companies," he continued.

"Especially in a market that's gone up for eight years in a row, the value of active management is not as readily apparent as it might have been in the past. A real recession, a real bear market, and I have a feeling that people will be willing to pay for active managers that can hold a little more cash, can protect their downside."

See here for the full CNBC PRO report and the interview video.