If investors don’t see real economic progress on the political front, Bob Doll thinks equity markets may begin to react negatively.
Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management, discussed why he thinks political expectations may be too high in his weekly market commentary.
“Equity prices have been rallying on expectations that the president and Congress will enact tax reform, fiscal spending and regulatory changes that will boost growth,” he writes. “However, President Trump’s legislative agenda appears to be stalled. Health care reform seems delayed over timing and specifics. And tax and spending legislation appears caught in a battle between those favoring growth and those concerned about the budget.”
Doll says that economic confidence may fade over the coming year.
“Clarity around tax and regulatory policy would help, but we expect economic uncertainty to rise,” he writes.
According to Doll, higher interest rates and a rising U.S. dollar could also be negative for the economy over time.
(On Friday, Janet Yellen said the Federal Reserve will likely raise interest rates this month.)
Doll says that inflation is not yet problematic, although he says it could slow global economic growth in the coming years
In a video on the Nuveen website, Doll discussed how politics seem “more important than usual” to equity market performance.
“At the end of the day, I would still argue it’s economic growth and more importantly earnings growth that drive stocks, but the political noise – the noise level as high as it is – certainly has an impact,” he said.
Doll cautioned investors to be wary of the volatility caused by Trump’s actions.
“[Trump] goes back and forth on stuff,” Doll said in the video. “I think that back and forth is going to cause a lot of people to be really confused. So we are in for a wild ride.”
In the video, Chris Davis, vice president of investment communications at Nuveen, and Doll discuss how the Trump administration could affect clients’ portfolios.