JOHNS CREEK, Ga. – Bob Doll, senior portfolio manager and chief equity strategist at Nuveen Asset Management and manager of the Large Cap Equity Series, predicted a bull market for the start of 2017 that is likely to continue throughout the year.
Doll was in Milton as the guest of Morgan Stanley Financial speaking Feb. 22 at The Olde Blind Dog Irish Pub to a small gathering of investors.
They were there to hear his forecast for 2017. Often seen on CNBC, Bloomberg TV and Fox Business News discussing the economy and markets, Doll is an investment author also writes weekly commentaries about the market and investing and provides timely observations on where the market is going.
Doll is rated among the top 1 percent of money managers.
Getting down to business, Doll said he liked where the economy is going and the stock market.
“Stocks always beat bonds in the long run. They have had a good run the last few years, but they’ve had their day.”
Trump riding rising economic tide
Doll noted President Trump has ushered in a stock market that is at a record high. But it had been building right along, Doll said.
With Trump’s election, optimism surrounding the Trump agenda is high with investors expecting tax reform, increased infrastructure and military spending and a rollback of regulations.
The downside for Trump and the economy is that optimism for his agenda will begin to fail after the first six months as his agenda begins to hit some bumps and the blush is off the rose.
“While we believe fundamental change is on the way, it may not be as easy as it appears. In particular, such comprehensive legislation is rarely simply crafted and passed without significant revision,” Doll said.
“Secondly, most of his agenda is likely to be passed in 2017, but won’t take effect until 2018. And the market’s mood may sour if Trump’s protectionist rhetoric – largely absent from post-election proceedings – resurfaces,” Doll said.
While predicting the economy is never easy, Doll likes much of what he sees for U.S. and the global economies.
The aging business cycle, rising interest rates, climbing dollar and continued slow productivity growth all create formidable headwinds, he said.
On the other side of the balance sheet, the recent election has “unleashed” a significant increase in consumer and business confidence. “We forecast another relatively modest year of growth in 2017, somewhere around 2 percent real GDP growth.
“We also expect the dollar to exhibit further strength and reach parity with the euro sometime in 2017,” he said.
In addition, 2016 was a strong year for jobs growth with new jobs averaging 185,000 a month. This year, jobs growth should be nearly as strong and remain above 150,000 in 2017.
The current 4.6 percent unemployment rate could drop further next year to below the 4.4 percent rate reached in May 2007.
Meanwhile, average hourly earnings growth bottomed at below 2 percent two years ago and could exceed the 3.1 percent level they hit in June 2009.
Bull market peaks by mid-year
Looking at the overall picture, the bull market should peak mid-year. The post-election “enthusiasm” has buoyed the stock market. Possibly more important, the market surge has also been driven by improving economic indicators since October.
“While we expect pro-growth [legislative] measures to be passed in 2017, we see two caveats.
“First, passing them will not be as easy as the current euphoria suggests. And they are unlikely to take effect until January 1, 2018.
“Couple this with a slow but likely increase in inflation, and we think a tug of war between rising earnings expectations and eventual valuation (P/E multiple) deterioration will suppress equity prices.”
As a result, Doll says the 2017 high in stock prices may come in the first half of the year.
The sectors Doll wants to be in are the financials, health care and information technology sectors. They will outperform energy, utilities and materials.
“Financials have been the leader since the election and should benefit from regulatory easing in 2017. Financials also feature cheap valuations.
“Health care presents a good opportunity beyond headline risks, and information technology offers both good growth and value characteristics.
Conversely, Doll says he continues to believe global growth will not provide the pricing power necessary for energy and materials to shine.
Nationalism, protectionism could prove vexing
One the most difficult and worrisome areas on the horizon is the continued rise of nationalist and protectionist trends as pro-domestic policies are pursued globally.
“The 2016 global political environment was marked by a rejection of establishment policies and a rise in nationalism, protectionism and isolationism,” he said.
The Brexit vote, the Trump election and the Italian referendum all symbolize this shift and point to a world in which many countries are withdrawing from the global economy.
“In general, we believe more globalization and more trade are healthy for global GDP growth, so moves in the opposite direction are troublesome,” Doll said. “This issue won’t be decided in one calendar year, but should be monitored carefully.”