tv Wall Street Week FOX Business December 26, 2016 10:30pm-11:01pm EST
good night from new york. thank you so much for joining us. >> announcer: from fox business head quartr quarters in new york city, the new "wall street week." anthony: welcome to "wall street week." trish: investors are riding the trump rally. the dow has posted over 15 record closes since the election. is this a classic case and will much of these gains evaporate if donald trump doesn't deliver on the promises he put forward? gary: to get some answers chris toomey joining us now from morgan stanley. you and your partner manage $3.5 billion.
you are going to be talking to your clients his week and early after the new year and telling them to reflect on what has been a difficult year even for long-term investors. what are you going to tell them? >> if you look at this year, we had two referendums, u.k. and italy which threw out two heads of state. we had 40 different elections. we had a huge election here in the united states. all sorts of concern and pressure on the market. yet we are basically where strategists thought we would be at the independent of the year. we are up 10%. if you want to look at what happened in 2016, you have to look back to 2015. oil prices and china drove 2015. we had a supply side correction. we had a lot of production primarily driven by opec and saudi not cutting. we saw a situation where oil
prices dropped below $30. and we saw china initiate a hard landing. they cut back only corruption and lending. they let their currency devalue and that created an industrial recession spipt went through 2016 into the first part of 2015 which created a lot of angst besides the stuff we talked about before. subsequent to that we started to get what wee think is a global recovery. sow the things that did poorly in 2015 did well in 2016. industrials. term companies, all of those companies down in 2015 did well in 2016. trish: nobody on wall street thought he was going to win. they woke up and said we need to reverse all of this. they went out and bought
industrials and sold tech and bought financials. we are living compared to 2016, we are living in a different world because we are going to see different economic policy? >> no question. i think if you look at performance within second towards, most of the performance we are talking about, these all-time highs was driven up into the election. there was a lot of pressure on the underlying investor. we actually saw the markets start to sell off again. when we got the certainty with regards to who is going to be the next president of the united states. we immediately got a pushup in the market and wall we think happened is that the donald trump election focusing in on tax reform and infrastructure spending and deregulation, basically turbo charged this recovery. >> a lot of people in the beginning of this year were incredibly scared to touch energy, to touch high yield
bonds, to touch commodities. you put your clients in these assets. i wants to know, what are you doing now in a similar way to what you did in 2016 for 2017? because that's the key in terms investing for the long term. >> i think you hit the nail on the head. to be a long-term investor you have to be patient and have a strong stomach. >> where do you want to be right now? where is it you want to start to invest? >> we are overweight equities versus credits. i think this secular growth story with regards top industries and financials will continue to ride out. you want to start look at growth at a reasonable price and look at technology and consumer discretionary.
places that look interesting in the equity market is small cap. the places he can execute immediately with regard to deregulation and reducing some of the tax oath code, that helps small cap companies. >> you mentioned financials. they have been on a tear. can that continue? isn't it time to say, okay, i made some money in financials? >> let's look at environment for financials. we are in a situation where financials went through the credit crisis. they came through with the regulators. they put a lost regulation on top of the banks. we have a low interest rate environment and a flat yield curve. in those situations those are three things that affect financials in a negative way. now the economy is growing, the yield curve is moving up. all niece things help financials. so in our view financials still have some room to run going
forward. gary: in terms of bonds, should long-term investors be allocating money to bonds? >> bonds are a critical con poem tonlts asset allocation. but if you look at bond market. we saw $1.5 trillion go into bond funds and bond etfs since the credit crisis. if you look at what they are benchmarked to, 2.5% yield. an 8-year average maturity and a duration of 7. what that means to the investor. if rates start to normalize and you see rates go up 100, 200 basis points, the bound vestors will see their portfolios go down 200%. places that we do like in the bond market preferred where you
are getting a yield pickup. you have a bond, but you are able to participate in the equity market. gary: excellent insight, chris. thanks for joining us. "wall street week" will be right back. >> announcer: if the market keeps surging, why arage americans shying away. how one ceo is arming americans with the tools needed to make martyr money decisions.
revolutionize the way americans get their financial advice. >> we saw in the marketplaces there is a lack of an ability for young investors to wrap their heads around to how to save for long-term financial goals. we wanted to help them set at financial journey and help them become aware of their financial situation to make better financial decisions for better financial outcomes in the future. it's about engage the user. the idea of sitting across a mahogany table has gone to the wayside with this generation. gary: what you have said i have heard across the industry for the last few years. does it mean they don't want a financial advisor in the traditional sense? >> they want to know what to do. they want to be told what to do and they want it personalized in their situation.
people have given them general ideas of what to do. they haven't given them the idea specific to their situation. someone with $50,000 in credit card debt can read all these blogs about how to pay off credit card debt. trish: you plug in your information and get a digital feedback? >> it's artificial intelligence we have been able to build. we analyze that information and provide a financial journey for you based on setting core financial goals. trish: a lot of people want that personal connection. they go to their financial advisor because it's a relationship. the person becomes your advisor for many, many years. and is an interest gral part of your decision make. you want to outsource that to a digital platform? >> that's where we are unique.
the digital platform and the technology and algorithms can do the analysis to get you started. but what technology can't deal with is the emotional as expect od --aspect of it. we connect them with one of our financial advisers when there needs to be a judgment call. we are making it more efficient for the advisor. the under $million investor, it's hard to make money in that space. we have to create relationships with individuals while the technologies do the tracking. gary: a lot of traditional advisors will say when the market has a serious correction which it has not had since 2008-2009, that the whole
roboadvisor industry will blow up because people have not found what to do in a 20-95% correction. how do you respond to that? >> that's fair argument. time will tell how that will go. we put a lot of time into it. how do we be proactive and learn about the individuals based on spending decisions and insurance decisions they make, and that allows us to have insight into how they will react in certain situation. we will try to predict how they are going to react and how they like to be managed. >> based on your spending you can figure out if trish is going to freak out if the market is in decline 20%? trish: i would think everybody would freak out when the market is down 25%. >> do they want a human to be talking to them or do they want to know how the market is going
to react to their long-term goals. trish: there was a new study that came out showing there is little upward mobility in society. we hope that changes. but we are looking at effectively the worst level in 70 years for young people. more people are living at home with their parents than we have seen since the 1940s. these young kids don't have money to rent an apartment let alone invest in the stock market. how does that start to change? do you think this economy is getting bert and more young people will go to work and have money to invest? >> i think the beautiful thing with our technology is one our main features is this angel on your shoulder. ability of technology to allow to us scale to individuals can allow for them to engage with us whether they are able to invest now or not and they are able to
have a partner on their side. trish: financial angel. gary: i can't wait to see how the algorithm will be able to decide whether you are the person who will get upset. >> announcer: when it comes to tax reform, donald trump and jack lew apparently see eye to eye. >> we need to get rid of the loopholes in the deductions and lower the rates. >> announcer: why is the treasury secretary telling fox news
trish: president-elect trump could not have been more clear on the campaign trail. he said it over and over again web wants to cut tax and let the economic boom that follows help bring back the deficit and get more americans back to work. but when currents treasury secretary jack lew sat down with maria bartiromo he sounded sceptical. >> we need to get rid of the loopholes in the deductions and lower the rates. but we can't spends a lot of money having a tax cut that loses revenue because that will shift the burdensome where else. gary: connell, can you cut taxes and growth economy to pay count deficit? >> technically. this will be our job to ask tough questions. to the extent we can have a
press honeymoon with donald trump, we are tonight now. business-friendly policies that will be put in place. he's trying to do both at the same time, have lower taxes and have more spending, especially infrastructure spending. there will be some part of this that has devil in the detail components to it. but the short answer to your question is yift can be done. i'll be interested to see if rich people do get a tax cut out of this. or if you get rid of the deductions, are they paying a similar rate to what they are paying now. >> the theory being you will grow the economy and take in more revenue it's sort of classic econ101. it's a chance to see if the policies can start to play out in a meaningful way. the fear and all this. this is what the bears worry about.
with all this spending, lauren, the interest rates are going to go up faster perhaps than anyone thinks, and they are fearful of that. >> let's say they go up a square points each of the three redictd rate hikes, they are still historically low. if we get the historic tax cut. mnuchin says this will be the biggest tax cut since ronald reagan. if we get that, and americans will use that tax savings on the economy, and the richer americans will feel confident using that money grow their businesses. the economy has grown 1.8% on average. they take off the red tape and we can see huge potential which we are craving.
gary: i think that's the priority for this administration. there will be questions brought up about how we pay for is there but at least initially for all the talk about everything else in the campaign that donald trump can come back in a year or two years and say this was the growth then, this is the growth now, i win. trish: everybody is going to know what a gdp number is. >> a tax hike for everybody. it's been tough. gary: the stock market has clearly reflected the fact that they expect the economic growth to, at 3.5 to 4% in 2017, and interest rates will remain low and the regulatory environment will be such that all these companies are going to to go out and hire.
is the stock market ahead of itself? >> i think it is. but we have been asking for this runup and hovering around dow 20,000. you are getting opinions on all sides. there is a reasonable argument that things shifted to an environment that is more business friendly. it's a stock market that's done pretty well under president obama. what is the next step? a change in environment that allows thed the growth to continue and be stronger. >> we all hope so. trish: you saw him his week in mar-a-lago meeting with the ceos of boeing and lockheed martin, and he has what he hopes will be a bidding war for the f-35 program. because it's $400 billion. so this is a guy that's going in there -- i can't remember when
we last had a president that said we need to get costs down. this is important. when we talk about the infrastructure spend, people are worried he's going to spend money willy-nilly. we are seeing evidence of discipline when it comes to boeing and lockheed martin. >> he's a deal maker. he will do negotiations with everybody he needs to. he also has an ego. he wants to go down as a good president. we are seeing resistance around 20,000. i know the stock market the last couple days not going up and up. but there is an n we haven't seen in a while. i have been reading we have been buying more christmas trees and saying merry christmas and having holiday parties again. donald trump ignited something in america we haven't seen in a long time. >> i think that's why he cares about growth first and everything else.
not even second or third. everything else way down the line, we'll worry about everything else afterwards. if he can come back and make that argument. hold up a piece of paper and say here is the growth where i started. and i win. but we have to answer questions. how do you pay for it? there are important questions in there that shouldn't get lost. >> as a long-term investor myself. growth is great. but you have got to remember how you actually get the growth. and if we get to the point where it's just about government spending, and government infrastructure projects, i think the stock market is going to be looking at that in a very concerned way. i think it's important that people remember that. it's good, it's great. the animal spirits are great. the christmas trees, the parties. you are not demonized to be a banker. trish: just a journalist. gary: but growth is great but
you have got to be able to pay for it. trish: that doiltsd for this week's show. merry christmas. happy hanukkah. we'll see you next week right we'll see you next week right back here. you can't predict the market. we'll see you next week right back here. but through good times and bad... ...at t. rowe price... ...we've helped our investors stay confident for over 75 years. call us or your advisor. t. rowe price. invest with confidence. afoot and light-hearted i take to the open road. healthy, free, the world before me, the long brown path before me leading wherever i choose. the east and the west are mine. the north and the south are mine.
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>> have a good christmas eve everyone. >> fifty? no way. terror attacks and plots rising across the globe. we now know the deceased suspect in that berlin christmas market rampage was an asylum seeker, and that has president-elect donald trump reminding us of his campaign promise to ban immigration from terror hot spots and anyone who cannot be fully vetted. would that help protect us from future attacks? hi everyone. merry christmas. happy hanukkah. i'm lauren simonetti in for brenda butner. our bulls and bears this week, gary b. smith, along with john -- welcome to all of you. is trump right