Related: Bob Doll’s 10 Predictions for 2022
Bob Doll, chief investment officer at the faith-based firm Crossmark Global Investments, entered 2022 predicting a more difficult year for the stock market, with more frequent pullbacks and higher volatility. No doubt this broad forecast has proved accurate so far.
Doll also made 10 specific predictions for the year and recently issued a midyear update — noting that four of his forecasts appear headed in the right direction, but that it’s too soon or too close to call to know where the other six will land.
While discussing his update and midyear views on a webcast Wednesday, Doll also touched on developments from the past few days and said the latest stock market rally offers signs that the bear market may soon come to an end.
“This is the first rally we’ve seen that shows some promise and some possibility that we’re setting up for the end of the bear market. I’m not calling for that, but the probabilities for the first time are higher now,” Doll said, noting that four earlier rallies in the current bear market led the S&P 500 to gain from 7% to 13%.
The rally started Friday, and Tuesday in particular “was a very strong day. There was real buying, there was real short covering,” he said, offering several reasons for the more promising market outlook.
“We saw [Tuesday] a 10-to-1 upside to downside volume, that’s the first 90%-plus day since this bear market started,” Doll said. “We also saw some outperformance by consumer discretionary over consumer staples. That’s been unusual in these rallies. We’ve seen defensive stocks lag the cyclical stocks, and that’s another good sign.”
The rally also arose from a significantly oversold market, he noted. It also followed recent fears that the Federal Reserve will raise the benchmark interest rate by 100 basis points later this month, while now it’s pretty clear rates will increase by only 75 basis points, he added.
Significantly, consumers’ long-term inflation expectations have declined recently, and “earnings are coming in less bad than feared.”
Doll isn’t convinced, however, that the market has seen the bottom yet rather than a series of troughs and cited several characteristics that would signal the actual bottom, including more visibility on Fed tightening, evidence that “the earnings story” will hold and “classic capitulation,” with the VIX index climbing above 40.
“We are more likely to have an up equity market in the second half than we saw in the first half,” with volatility persisting in both directions, he predicted Wednesday.
The 10 slides above highlight Doll’s original predictions for 2022 and his midyear update, based on data as of June 30.