Predictions, as they say, are very difficult to make, especially when they are about the distant future. That's what makes Bob Doll's 2016 hit rate so impressive. But can Nuveen's chief equity strategist do it again in 2017?Doll nailed 8.5 out of 10 of his annual market and political predictions for 2016. Most impressively, he correctly called for the G.O.P to capture both Congress and the White House.
As for his prognostications for this coming year, Doll first and foremost sees United States and global economic growth improving modestly as the dollar strengthens and reaches parity with the euro. In terms of stocks, he sees equities hitting their 2017 highs in the first half of the year as earnings rise but price/earnings multiples fall.
Sticking with stocks, Doll predicts they will outperform bonds for the sixth year in a row for the first time in 20 years, albeit with a lot of volatility along the way. According to his crystal ball, small caps, cyclical sectors and value styles will beat large caps, defensive and growth areas. And he believes financial, health care and information technology shares outperform energy, utilities and materials.
On the bond side, Doll is calling for Treasury yields to move higher for a third consecutive year for the first time in 36 years as the Fed raises rates at least twice.
Politically speaking, Doll predicts nationalist and protectionist trends will rise as pro-domestic policies are pursued globally. And all the initial optimism about the Trump agenda will fade in light of slow legislative progress.
"Optimism surrounding the Trump agenda is high, as investors are expecting tax reform, increased infrastructure and military spending and a rollback of regulations. While we believe fundamental change is on the way, it may not be as easy as it appears," said Doll.
Putting it all together, Doll believes investors may be in for a difficult ride, but one that will ultimately end up higher, if only by a little, after 2016's 12% total return for the S&P 500.
"The 35-year disinflationary, falling interest rate world is ending, and that brings some challenges," said Doll. "We think investors should expect more modest, single-digit returns over the next 5 to 10 years from nearly all asset classes, due to relatively slow long-term global economic and earnings growth and generally full valuations."