The most important issue for the next president — and Congress — to tackle is corporate tax reform, stocks will continue to outperform bonds over the next decade, and Brexit is a “nonissue,” Bob Doll told money managers Thursday.
Speaking at the Money Management Institute’s annual convention in Washington, Doll, chief equity strategist and senior portfolio manager for Nuveen Asset Management, pegged corporate tax reform as the “most important issue for the markets” after the presidential election, and laid out some other predictions for attendees.
“My humble prayer before my head hits the pillow is ‘Dear Lord, whether it’s a donkey or elephant or some other animal in the White House, please, please, please have them tackle corporate tax reform,’” Doll said. “If we don’t, it’s not good news for jobs, profits or markets.”
Doll argued that companies will start to flee the U.S. because the nation charges the “highest marginal tax rate in the world, and is the only country that has not permitted its companies to bring cash home without inordinate penalty.”
Added Doll: “If we don’t fix that, dozens of U.S. companies will leave the United States; they don’t need it.”
Doll also noted that because the stock market is driven by earnings — which have been “flat” — the only way stocks are going to be up this year is “we need better earnings.”
Said Doll: “While the bull market in stocks is not over, it is no longer young and vibrant; it is old and wrinkled and needs a cane to walk across the street. But it’s not dead.”
While the “easy money in [the] bull market is in the rear view mirror,” he added, “it doesn’t mean gains are over.”
Beta, he opined, “probably [is] not going to work much; you gotta use some alpha. It’s tough for beta to work now.”
Doll also noted the worry among advisors that China is a “big black hole that’s going to suck the rest of the world into it.”
China “fears,” he said, resurfaced in January and February when the markets headed south. While China is “not without faults” and is “slowing,” Doll said, the country is “having some limited success in reorienting the economy away from an overdependence on exports toward consumption. With that swing lies a lot of hopes,” Doll said, adding that “China is an emerging market, despite its size.”
An advisor asked Doll in January if “the recession in China would lead to a recession in the U.S.”
Doll’s reply: “Recession in China? Where in God’s earth did you get that?”
Continued Doll: “We all know that China is nowhere near a recession. Has it slowed? Yes, but it’s the second fastest growing economy on the planet.”
As to four or five interest rate hikes by the Federal Reserve this year, Doll said “one maybe two, not two maybe three” is the more likely answer.
What Doll views as the “biggest” risk: “Will the U.S. import deflation from the rest of the world, via commodities, currencies?”
What to watch? “Wage rate inflation in the U.S.,” Doll said. “Nobody’s talking about it.”
— Check out Are We Headed for Recession? on ThinkAdvisor.