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Portfolio > Economy & Markets

Bob Doll: Confusing Times Ahead for U.S.

By Janet Levaux

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Where’s the U.S. economy headed? “The picture is very confusing,” said Bob Doll, a senior portfolio manager and chief equity strategist with Nuveen Asset Management in a recent interview.

While consumer sales are growing, there are headwinds like trade and inventory issues, Doll explained during the interview, broadcast on Asset TV this week.

“Real GDP [growth in the third quarter] could be 2% or a little less, after 3.9% in Q2,” he stated. As for the average going forward, “It should be somewhere in the twos, hopefully in the higher twos.”

GDP growth rates in some emerging markets look “more mixed,” he said in his weekly investment commentary, published Monday. “China’s economy is clearly slowing, and we think it is decelerating to approximately 5%.”

This divergence between growth in the U.S. and weakening in many other parts of the world is affecting U.S. corporate earnings.

“In the third quarter, results are mixed, and we may see a -2% earnings change overall,” Doll said during in the interview. “The demarcation line speaks to the decoupling of the global economy.”

(A big factor in the drop in average earnings, the Nuveen expert says, is the significant decline in energy earnings. “Reported earnings may be down around 2% to 3%, but would be up 4% to 5% excluding energy,” he explained in a written commentary on the markets.)

Corporations with results (i.e., sales) tied to the U.S. economy are “doing fine,” he says, and are seeing their earnings rise by an average of about 8%. But earnings tied to other economies “are down almost in the high single-digits,” the equity analyst adds.

“Look, China is slowing. There’s no question about it,” he explained on Asset TV earlier this week. “But it’s slowing to a pace that is the envy of most of the rest of the world – 4, 5 or 6%.”

When asked about the significance of China’s slowdown to the U.S. economy and U.S. equity performance, Doll said, “It’s important but much less important than most think … It’s not the end of the world. Just 0.7% of our GDP is [tied to] our exports to China.”

Investors and others, he points out, appear to be overly focused on China and the Federal Reserve. “Attention is on them and nothing else,” Doll stated. China’s weakening, he stresses, “is not the end of the world.”

As for the state of the U.S. stock market, “We are in a healing process,” he explained, and will continue moving between corrections and rallies. “My point is that things are volatile without a lot of trend. They are going to continue to frustrate both the bulls and the bears.”

“We have argued previously that the S&P 500 was in a trading range of between a low of 1,867 and a high of around 2,050 to 2,100,” Doll wrote in his latest viewpoint.

Though he remains upbeat on equity performance in the long run, he also does not think “the recent straight upward trend can continue without markets taking a breather at some point.”

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