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Bob Doll, chief equity Strategist, Nuveen Asset Management

Portfolio > Economy & Markets

Why the S&P 500 May Have Peaked for 2023: Bob Doll

By Dinah Wisenberg Brin

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What You Need to Know

  • Breaking the October 2022 S&P 500 low is unlikely but possible, says the longtime market prognosticator.
  • Capital preservation should be investors' priority unless a soft landing clearly materializes, he writes.
  • Sticky inflation, tight monetary policy, and the lagged effects of current economic policies make a recession likely in the near future, he says.

The S&P 500’s year-to-date high, 4,589 on July 31, may have been the peak for 2023, according to Bob Doll, Crossmark Global Investments’ chief investment officer.

Doll, a longtime prognosticator of financial markets who is known for his annual Ten Predictions lists, said he wasn’t optimistic about an economic soft landing.

“Given the lagged effects of monetary policy, and the stickier persistence of inflation and valuation levels, it is difficult to build a bullish narrative,” he wrote in his weekly Doll’s Deliberations newsletter, released Monday.

“Until a recession is more obvious, we expect the stock market to tread water between S&P 4,200 and 4,600 as it has done since June,” Doll added. 

Crossmark, which suggests that investors focus on capital preservation, projects the index to end the year at 4,200, he said, explaining that it’s unclear when a recession will start but that a slowdown will become more evident.

Further downside is likely if a recession develops and companies lower earnings estimates, according to Doll, who does expect a downturn in the “not-too-distant future.”

“Breaking the October 2022 low is unlikely but possible,” he said, explaining that any recession will probably be mild due to “reasonably good” consumer balance sheets, “pretty healthy” corporate balance sheets and lower-than-usual credit problems on bank balance sheets.

Doll also cited expectations for the Federal Reserve to keep interest rates higher for longer, with rate cuts “constantly pushed out in time.”

Without rate cuts, a soft landing seems implausible, and cuts will probably come too late to prevent a U.S. recession, he wrote.

The next few months will likely be confusing as investors grapple with signs of sticky underlying inflation, rising bond yields and central banks being “on hold” amid uncertainty over the economic expansion’s persistence, Doll predicted.

The CIO cited seven conclusions for investors:

  1. Stocks have outperformed this year as markets challenge Crossmark’s view that the U.S. economy is on a recessionary path. Equity outperformance has been driven by a concentration of artificial intelligence-connected stocks.
  2. U.S. monetary policy appears tight, which argues against the “no-landing” scenario for the economy. The recessionary clock is ticking unless monetary policy eases soon.
  3. June and July inflation data offer support for the “soft landing” outlook but may have been depressed by odd seasonal adjustments.
  4. There’s debate whether the Fed will cut its benchmark interest rate if inflation reaches its forecasts before unemployment rises.
  5. Excess savings and better wage growth have supported U.S. growth and labor demand in 2023, but both are likely fleeting. Recent labor market data indicate higher odds that weaker labor demand will translate into higher unemployment, bringing about recession.
  6. Until it’s clear that a soft landing is materializing, Crossmark recommends that investors maintain defensive portfolio positions and prioritize capital preservation over maximizing returns.
  7. Stock selection should focus on earnings predictability and persistence, good and growing cash flow, and reasonable valuations.

Photo: Bloomberg

Dinah Wisenberg Brin

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