Bob Doll Sees Stocks Rising; Scores His 10 Predictions

Nuveen's top equity strategist acknowledges investor worries but expects global growth will be strong enough to push equities even higher

Bob Doll, chief equity strategist at Nuveen. Bob Doll, chief equity strategist at Nuveen.

Bob Doll, chief equity strategist at Nuveen Asset Management, acknowledges that investors are concerned about the global macro outlook, political developments in the U.S. and U.K. and historically low volatility while U.S. stocks continue to hit record highs, but he expects global growth will be strong enough to push corporate earnings and equity prices even higher.

(Related:  Are Stocks Overvalued or Poised for More Gains?)

"The world economy appears in better shape now than it has been in years,” writes Doll in a recent weekly report. “Slow but gradual increases in rates [by central banks] will put upward pressure on bond yields, but shouldn’t derail the equity bull market.”

(Related: Gary Shilling: Falling Oil Prices Could End the Stock Market Rally)

“Improving corporate earnings are the key ingredient needed to sustain the equity bull market,” writes Doll, who notes that stocks “are not cheap and could become expensive if earnings do not improve and keep pace with prices.” 

To date, just 19% of companies in the S&P 500 have reported second-quarter earnings, but the results so far have been favorable.

Aggregate earnings beat estimates by 7.8% and aggregate sales topped estimates by 1.3% — in both cases coming in above five-year averages, according to FactSet.

The consensus expectations for year-over-year earnings per share is 8% for the second quarter and 11% for the year, according to Doll.

Despite his optimism, Doll advises “selectivity” in choosing stocks. He notes that select foreign stocks have displaced U.S. stocks as market leaders, due to valuations, but that they require continued economic expansion and a revival in global trade to retain that position.

Financial, industrial and select health care stocks are leading the U.S. market, writes Doll, who adds that select tech stocks also look attractive. He doesn’t identify specific stocks in the U.S. or overseas.

It's too early to tell if Doll's expectations will come to pass, but in an earlier outlook at the end of June, the chief equity strategist at Nuveen reviewed his 10 market predictions for 2017 offered up in early January. Here's how they have panned out so far:

4 Predictions Too Early to Call

  1. Modest growth in the U.S. and global economies and dollar reaching parity with the euro (Parity hasn’t been achieved yet.)
  2. Treasury yields higher for the third consecutive year as the Fed raises rates at least twice (Treasury yields are lower than they were at the beginning of the year.)
  3. Stocks at record highs in the first half as earnings rise but P/E multiples fall. (P/Es have not fallen.)
  4. Stocks outperform bonds for the sixth year in a row while volatility rises (Volatility has not risen.)

 5 Predictions Heading in the Right Direction

  1.  Unemployment falls to its lowest level in 17 years and wages increase at the fastest pace since the Great Recession (year-over-year wage growth remains below the 3%-plus pre-recession rate)
  2. Financial, health care and tech stocks outperform, energy, utilities and materials
  3. Active managers’ performance improves as flows into equities rise. (Fifty-four percent of large-cap managers outperformed their benchmarks in the first half and inflows into active equity portfolios in mid-July rose to their highest level in 2.5 years, according to BofA Merrill Lynch.)
  4. Nationalist and protectionist trends rise as pro-domestic policies are pursued globally
  5. Initial optimism about the Trump agenda fades in light of slow legislative progress

 Heading in the Wrong Direction

  1.  Small caps, cyclical sectors and value styles beat large caps, defensive and growth. (Small cap and value styles have underperformed.)

"The world economy appears in better shape now than it has been in years,” writes Doll in a recent weekly report. “Slow but gradual increases in rates [by central banks] will put upward pressure on bond yields, but shouldn’t derail the equity bull market.”

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