What You Need to Know
- The Fed is unlikely to cut interest rates in the next six months, Doll predicted.
- The July unemployment report, stronger than expected, undermines idea U.S. economy is in or near a recession, he said.
- Fed funds rate would need to be higher next year than market now expects for inflation to fall back to 2%, Doll noted.
The current bear market likely hasn’t hit its true bottom yet, Bob Doll, chief investment officer for Crossmark Global Investments, said in commentary released Monday, suggesting there’s only a one-third probability that June 16 marked the equity market low for this cycle.
Equity prices should be higher in six or 12 months, though, based on Crossmark’s “mildly constructive” economic outlook, the strategist suggested.
“We believe the equity market rally is [a] counter trend and nearing its peak,” Doll wrote. The economy is decelerating, expectations for corporate profits are too high and it’s premature to look past Federal Reserve activity, he explained.
It’s very unlikely the Fed will start cutting rates anytime in the next six months, despite recent financial market moves indicating expectations that central banks will pivot from hiking to cutting interest rates based on weakening economic conditions, Doll said.
“The unemployment report for July was much stronger than expected and undermines the argument that the U.S. economy is in recession or will be so imminently. It also increases the odds of another 75 (basis points) Fed rate hike next month,” he wrote.
Inflation can probably fall back to 4% to 5% fairly easily but getting to 2% will require higher unemployment and a higher federal funds rate next year than the market is currently calculating, according to Doll.