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Bob Doll

Portfolio > Economy & Markets

What Bob Doll Predicts Stocks Will Do Next

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What You Need to Know

  • Doll sticks by his forecast that stock market will be higher on Dec. 31 than on June 30.
  • New lows may be ahead, but absent an unexpected event, he predicts stocks will
  • Investors should focus on their purpose and on the long term, he advises.

The U.S. stock market is “in the neighborhood of fair valuation” but likely hasn’t hit its true low, Crossmark Global Investments Chief Investment Officer Bob Doll said Thursday, a day before equities tumbled on new data showing further declines in unemployment.

The strong jobs numbers fueled market concerns that the Federal Reserve will stick to its aggressive rate-hiking cycle in efforts to quell high inflation.

This summer Doll predicted the stock market would end the year higher than it was on June 30, “and I’m sticking by that, but maybe not by much,” he said in an interview with ThinkAdvisor. (Doll indicated through a representative that Friday’s moves didn’t change his market views.)

The S&P 500 closed at 3,785.38 on June 30; it closed Friday at 3,639.66 after sliding more than 104 points.

Doll said he doesn’t see the S&P 500 falling to 3,000, and maybe not even to 3,200 or 3300.

He expects inflation to subside to roughly 4% to 5% by year end; historically when inflation is in that zone, corporate price-to-earnings ratios average 15 to 16, “which is about where we are,” Doll said.

“In the long run stocks move up when earnings move up and we’re in the process of watching earnings estimates slowly move down,” he noted.

While the stock market headed in a straight downward trajectory in this year’s first half, it’s now seeing “more of a volatile trading range that frustrates both the bulls and the bears,” Doll said. Absent some break in the system, “stocks are going to meander,” with selloffs and rallies like those experienced in recent days, he added.

Doll says he’s “still nibbling away” and adding to positions during down periods so he doesn’t miss any big moves. The investment strategist expects more testing before the market sees its trough, with little upside anytime soon.

“I’m not convinced we’ve seen the primary low,” Doll said.

At the same time, “I don’t see a whole lot of downside, with the asterisk next to it, ‘assuming nothing breaks.’” 

A break, such as tight liquidity getting a big bank into trouble, won’t necessarily happen, and if it does the economy can get through it, he said. “Predicting these things is impossible,” Doll said.  “It’s usually in the dark of night” and nobody anticipates it, he added.

The economy’s slowing, earnings are at risk and the Fed doesn’t appear to be done with its tightening policy, meaning the economy may be in for more pain, he said, noting “just so many unanswered questions,” such as how fast inflation will come down and how much more central banks will do to fight it.

To identify a market bottom, investors should look for “a give-up phase” — capitulation — for the VIX volatility index to hit 40, and for put-call ratios to go through the roof, he said. (The VIX ended the week at 31.36.) The put-call ratio signals a bearish market sentiment when put options to sell a security at a set price outnumber call options to buy.

Meanwhile, Doll said, “I’m moving up in big down periods.” The bull/bear ratio indicating investor sentiment has been giving a tangible sign the market is oversold and it’s time to add a little to stock positions, he added.

“With an investment backdrop of falling earnings expectations, Fed tightening, inverted yield curve, a European energy crisis, and Russia discussing the use of nuclear weapons, it is hard to be constructive on equities despite reduced valuation levels and negative sentiment,” Doll said in a new weekly commentary published today. He added, though, that stocks have already discounted a mild recession.

As for what guidance advisors can give to clients, he suggested, “Focus on what my purpose is and focus on the long term.” Advisors should keep clients from “going over the ledge,” he told ThinkAdvisor.

“This is the first time in 50 years that stocks and bonds have gone down three quarters in a row,” and John Q. Public may be tempted to get out.

“That’s probably not the right advice,” Doll added. “Use psychology if you need to at this point. Sentiment’s really important.”


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