Longest U.S. expansion | Score: right direction | At Q2-end, the current expansion was the longest in U.S. history. Despite the U.S. economy’s slowing, 2019 GDP will exceed 2%. (Photo: Shutterstock)
Unemployment bottoms, wages rise | Score: right direction | Unemployment, hovering around 3.6%, is likely to bottom out this year. Wage growth is slower than expected, but still trending higher. (Photo: Shutterstock)
Yield curve flattens | Score: too early to call | The yield curve inverted several times in 2019, and credit spreads tightened at the start of the year before widening. Fixed income market volatility will persist. (Photo: Shutterstock)
Corporate earnings growth weakens | Score: right direction | With revenues and profits under pressure, earnings growth expectations for 2019 and 2020 are down 6% from the start of the year. This year’s estimates are now at reasonable levels, but next year’s still appear too high. (Photo: Shutterstock)
U.S. equities positive, but no record highs | Score: too early to call | The S&P 500 is trading in the 2,950 range for fourth time in this cycle, but stocks haven’t gone anywhere in 18 months. (Photo: Shutterstock)
Non-U.S. stocks outperform, dollar sags | Score: wrong direction | U.S. growth remains stronger than non-U.S. growth, and the S&P 500 is ahead of MSCI World Index ex-U.S. The greenback has been stronger than expected. (Photo: Shutterstock)
Favored sectors outperform less-favored ones | Score: too early to call | To date, favored IT, financial and health care sectors and less-favored utilities, REITs and materials are both up 17.5%. (Photo: Shutterstock)
Federal budget deficit nears $1 trillion | Score: right direction | Neither Republicans nor Democrats are interested in curbing spending. As of May, the Congressional Budget Office forecast a $900 billion fiscal deficit for 2019. (Photo: Shutterstock)
U.S., global politics spur market volatility | Score: right direction | Trade issues dominate headlines, but other global tensions and intra-U.S. discord also raise concerns. The effect on economies and financial markets is unlikely to be positive. (Photo: Shutterstock)
2020 presidential politics | Scorecard: right direction | As predicted, a double-digit number of Democrats are running for president. Some fracturing appears between the incumbent and the rest of the Republican Party in Bill Weld’s quixotic effort to head the GOP ticket. (Photo: Shutterstock)
Robert Doll, the senior portfolio manager and chief equity strategist at Nuveen, made 10 predictions for 2019 around the theme that markets and economic data would be choppy, but that a recession was not in the offing nor would the bull market end.
At the end of the second quarter, he reviewed those predictions and found that most of them were trending in the right direction.
And what does Doll’s crystal ball say about the second half of the year?
He sees several reasons to be cautious in the near term toward stocks, which ended the second quarter at near record levels:
- Investors have priced in prospects for lower interest rates
- The Federal Reserve has some capacity to ease rates, not so most other central banks
- A near-term U.S./China trade pact is unlikely
- Global growth is uneven, corporate earnings expectations are trending downward
- Stocks appear fully valued
Doll says Nuveen continues to have a “boringly neutral” view toward the broad equity market. It behooves investors to remain tactical, he says, possibly selling into strength and buying on weakness.
In addition, investors can focus on companies that are generating free cash flow, ones with pricing power or competitive advantages, and corporations that derive more of their revenues from domestic sources.
“This bull market doesn’t appear to be over, but investing could become more difficult,” Doll says. “We believe this is an environment where the benefits of active management and flexibility are likely to grow in importance.”
Take a look at how Doll’s predictions for 2019 are panning out at midyear — whether trends are moving in the right direction, the wrong direction or it’s too early to call.
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