Stock Bulls Likely Headed for a Letdown: Bob Doll

Investors expecting a new bull market to develop will likely be let down, according to Bob Doll, Crossmark Global Investments’ chief investment officer, who sees limited run room for equities.

Global equities rallied last month on investor optimism that central banks have finished raising interest rates, bond yields will continue to retreat and economies will avoid recession, Doll noted in his weekly Doll’s Deliberations newsletter Monday.

There’s limited room for the stock market to advance significantly, however, given the economic cycle’s late stage, valuation levels, already elevated U.S. corporate earnings and the risk that sturdy global economic growth will prompt central banks to keep rates steady in 2024 rather than cutting them, as markets expect, Doll explained.

“Equity investors betting that Fed rate cuts will both prevent a recession and somehow allow a new sustained economic reacceleration and equity bull market phase to develop are destined to be disappointed,” he said.

“Equities may be able to thrive over the near term in response to the recent pullback in bond yields and given the ongoing rise in expected forward earnings, but the run room on any up-leg will be limited.”

Upside for corporate earnings also is probably limited, given relatively elevated consensus estimates, according to Doll. Markets are pricing in an uptick in revenue growth that’s inconsistent with easing monetary policy, he added.

“We continue to believe that the recent retreat in bond yields is temporary and global equities are in a topping-out process and as such are sellers on strength rather than buyers on weakness,” Doll said.

(Image: Chris Nicholls/ALM; Bloomberg)