Bob Doll, chief equity strategist and senior portfolio manager for Nuveen Asset Management, kicked off 2013 by offering 10 market and economy predictions for 2013.
So how did Doll do? By his own accounting, he got five predictions right and three wrong, and two are still too early to call.
Summing up his market calls, Doll (left) on Monday wrote in “A Mid-Year 10 Predictions Assessment” that equities had a strong six-month period despite a May and June correction primarily due to a very difficult bond market.
“Perhaps the ‘great rotation’ started late in the second quarter as investors moved from bonds and bond-like equities, with measured progress for cyclical and growth equities,” Doll said. “Anxiety remains over the Fed ending its quantitative easing experiment, and there are also financial issues in China that are cause for concern.”
Looking ahead, Doll ventures that the big question will be the Federal Reserve’s exit strategy from quantitative easing: “What does this look like and does it work?” Also, he wants to see how financial concerns in China play out, and he wonders whether nominal growth will be strong enough in the U.S. and globally for earnings to improve.
“It appears as if the multiple-driven equity market is finished, and we will need better earnings for the equity market to move higher,” Doll concludes.
On the next pages, read about Doll’s five correct predictions followed by the three he got wrong and the two that are still too early to call.
(Read Bob Doll’s Top 10 Predictions on Economy for 2013 at AdvisorOne.)
The Five Predictions That Bob Doll Got Right:
1) The U.S. economy continues to muddle through with nominal growth below 5% for the seventh year in a row.
“Real GDP in the U.S. will be around 2% with inflation at 2%, equating to nominal growth of 4%,” Doll writes. “The private economy is potentially growing closer to 3% (real), with the dampening factors being sequestration and fiscal drag.”
2) The U.S. yield curve steepens as financial risks recede and deflationary threats lessen.
“Certainly the U.S. yield curve has steepened,” Doll asserts. “The 10-year U.S. Treasury yield began the year at 1.84% and has flirted with 2.60%. We anticipate it will settle in the 2.40% to 2.60% range. The 10-year yield was as low as 1.68% during the commodities sell-off early in the second quarter.”
3) U.S. stocks record a new all-time high as stocks advance for the fifth year in a row.
“U.S. equities are off to a good start as the S&P 500 has increased 13.82% through the second quarter,” Doll says. “The P/E ratio continued to rise as has been the case since the end of 2011, although earnings growth has been mediocre.”
4) Dividends increase at a double-digit rate as payout ratios rise.