Trennert: Caution is the Word

Be careful out there. That's the catchphrase to remember, according to longtime market watcher Jason DeSena Trennert. As managing partner and chief investment strategist at Strategas Research Partners, he has been investing since 1990 and says the mess on Wall Street today makes ultrasafe stock portfolios the best bet for some time to come while investors endure an economystruggling through its own extended version of the credit crisis.

"There's not a person alive who's gone through what we're going through now," he says. "[The bailout] should remove some of the sclerosis from the credit markets, but the real economy hasn't really felt the impact in the price and availability of credit. That's what we have to look forward to next year."

Trennert believes "heroic" efforts by the government to reverse the credit meltdown will only keep stocks from falling further, not set the stage for a big bounce when banks sort out all their bad bets. Instead, he predicts a slow, plodding year for equities as those same credit problems make their way through companies and the consumer.

That means now is most certainly not the moment for anxious investors to jump back in to try to claw back losses notched during 2008. While common market wisdom may hold that stocks rebound long before a recession ends, this downturn could last well into 2009, he thinks. In late September, Trennert cut his end-of-year forecast for the S&P 500 to far below even humble first-half levels. "We know the market always bottoms before the economy. The problem is I don't think the economy bottoms for another year," he says.

Fiscal health. In short, investors could be in for a long, agonizing stretch where the best performers will simply be companies with the best defenses against the worst excesses of years of profligate lending on Wall Street. That makes fiscal health the No. 1 criterion for picking stocks. Cold, hard cash (or simply a lack of debt) is key. The names that will endure are ones you already know: Pfizer, Merck, Campbell Soup, Altria Group, and Coca-Cola. It's an admittedly dull list, but Trennert stresses this is not the time to be playing free and loose with your investment cash. "They seem staid, but they'll come through this stronger than ever," he says.

Looking at stock sectors, safety also means putting money in time-tested havens like healthcare and consumer staples and avoiding those industries that traditionally lead rebounds like consumer discretionary, airlines, and home builders.

Trennert is, however, willing to step outside his caution zone when it comes to the scariest sector of all: investment banks. The collapse of Bear Stearns and Lehman Brothers and a host of tarnished reputations and share prices among the former giants of midtown Manhattan create an opportunity for boutique firms like Greenhill, Stifel Financial, and Lazard, which have already seen share prices perk up thanks to new business and relatively low exposure to credit problems. But that advice doesn't extend to the rest of the banking sector or to stocks generally. Investors are still solidly in "catch a falling knife" territory, Trennert says, and until the market calms, there's absolutely nothing wrong with staying on the sidelines.