Bob Doll: This Quarter's Rally May Have Legs
The Crossmark Global Investments chief investment officer also said, "I don't know that we've slain the bear yet."
Crossmark Global Investments CIO Bob Doll suggested Friday that the fourth quarter market rally has further to go, although he said the jury’s out on whether it’s a bear market rally or signals a more meaningful change.
“We have to remember that bear market rallies are vicious. They’re stronger than bull market rallies. I don’t know that we’ve slain the bear yet,” he said on CNBC’s “Squawk on the Street.”
Inflation remains in mid- to high single digits, and it’s unclear how much earnings will come down, whether the economy will shift into a recession and how far the Fed will go with rate hikes, Doll explained.
“Hard for me to say that it’s an all-clear sign,” he said, a day after the S&P 500 marked its largest one-day percentage gain in more than two years on lower-than-expected inflation data.
As a portfolio manager, Doll said he has been slowly adding cyclical holding, while letting go of more defensive stocks like HMOs: “The question is do I need to quicken that pace? The jury’s out.”
Inflation has peaked, but a 6% or 7% rate “is totally unacceptable,” he explained, and the Federal Reserve has more work to do. The Fed has raised rates at the fastest pace in history, the lagged effect on the economy from Fed rate changes is long, and “we don’t know what the impact’s going to be,” he added
He hopes Fed officials “take a little pause” after their next expected interest rate hike in December and assess what their recent increases have done for the economy.
“I think earnings estimates have to come down, but I’m not convinced this fourth-quarter rally’s over,” Doll said.
The chief investment officer also suggested that “leaning down in [capitalization] is quite OK for portfolios,” meaning moving down from large-cap holdings to small- and mid-cap investments.