U.S. stocks may not have have hit bottom and any short-term bounce is unlikely to last, given policy and economic uncertainties, Crossmark Global Investments CEO and Chief Investment Officer Bob Doll said Monday.
"We remain skeptical about the market having seen the lows," Doll wrote in his weekly commentary. "The near-run environment will be stagflationary, especially for the U.S. economy. The inflation risks are larger for the U.S., courtesy of both the weaker U.S. dollar and because the tariffs will have a bigger impact on the U.S. than elsewhere."
Risk assets are too expensive for the challenging macro environment, he wrote.
The overall global growth outlook "has been dented and prospects will remain uncertain until there is clarity on the endpoint of the trade war, which still seems a long way off," he said.
The U.S. policy choice to embark on a trade war "is the reason the economy will slow; a slide toward a recession may yet develop, unless the tariff escalation sustainably reverses. The attack on the Fed’s independence has further increased economic uncertainty and added to the exodus out of U.S. assets," he wrote.
Downside risks could subside if President Donald Trump rolls back his proposed tariffs in a sustained way, according to Doll, who noted the 90-day pause in "reciprocal" tariffs on all countries excluding China was encouraging. "However, it remains unknowable when the trade war will end, and at what tariff levels."
He noted that U.S. stocks rose last week as Trump backtracked on threats to fire Federal Reserve Chairman Jerome Powell and extended an olive branch to China on tariffs.
"While welcome, policy and economic uncertainty will remain elevated as investors wait in trepidation for the next tweet. Some damage to global trust and economic decision-making has already occurred, although the magnitude is difficult to guesstimate and still depends on any upcoming actions," Doll said.
"Oversold conditions warrant a near-run bounce in equity markets. The durability of any bounce hinges on whether the source of the downward pressure abates, i.e., the trade war. For now, we remain wary of such bounces," Doll wrote.
"Treasury and equity market weakness might finally be impacting U.S. trade policy. However, it is premature to upgrade our current defensive investment stance. Any shift awaits a clear easing in the trade war before lasting economic damage occurs," he wrote, adding that economic activity is cooling even as prices are elevated.
Illustration: Chris Nicholls/ALM; Courtesy photo
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