At the start of 2021, Bob Doll predicted that things would improve, but questioned whether markets already know, reflecting a somewhat divided outlook. So how did he do in retrospect?
As he has for more than 30 years, in January Doll offered his annual top 10 predictions on the trends and issues he believes are positioned to shape the economy and markets for the coming year. This year was a bit different for Doll, however. While he started the year as Nuveen’s Senior Portfolio Manager & Chief Equity Strategist, he announced in March that he was retiring, only to resurface in June at faith-based investment firm Crossmark Global Investments, where he now serves as Chief Investment Officer.
Overall, Doll notes that as things currently stand, he will have made 6 out of 10 predictions accurately for 2021, which he acknowledges is below his long-term average of 7-7.5 out of 10. Here's how he evaluates his 2021 predictions:
- U.S. real GDP increases at its fastest pace in 20 years. Doll observes that not only was growth better than any time in the last 20 years, it is better than any year since 1984, when it was 7.2%. In pointing to the reopening of the economy and the “unprecedented” fiscal and monetary aid as the source of the upside, he says that real GDP looks to be coming in at around 5% for calendar 2021.
- Inflation approaches 2% as the 10-year U.S. Treasury yield reaches 1.5%. Doll notes that this prediction garnered the most attention early in the year, when 2% inflation and 10-year Treasury yields of 1.5% seemed far-fetched. “Needless to say, even our bearish outlook was exceeded by the highest inflation rate in almost 40 years and a rise in the 10-year Treasury yields to above 1.75%,” Doll writes.
- The U.S. dollar sinks to a five-year low. Not only has the dollar not hit a five-year low, Doll observes, but, instead, rallied on the strength of the U.S. economy and the rise in interest rates attracting capital to the U.S. He emphasizes that the dollar did not necessarily strengthen, but rather other currencies weakened, producing the same outcome.
- Stocks reach a new high for the 12th consecutive year, but fail to keep pace with strong earnings growth. “Stocks hit many new highs during the course of 2021, mainly propelled by earnings growth exceeding expectations by amounts never seen before,” Doll says. He notes that the S&P 500 is up approximately 25%, while earnings for the calendar year are projected to increase by 40%.
- Stocks outperform cash, but cash outperforms Treasury bonds for the first time since 2013. Here, Doll observes that this order of finish has not occurred since 2013. As interest rates crept higher, almost all bonds lost money this year, thereby underperforming cash, he notes. Moreover, while the rise in interest rates has had a negative impact on stocks, earnings growth has more than compensated.
- Value, small and non-U.S. stocks (especially EM) outperform growth, big and U.S. stocks. Doll notes that, while they struck out on this prediction, to stay tuned for the firm’s 2022 predictions. Growth stocks triumphed over value stocks again, while big stocks outperformed small stocks, as investors pushed up valuation for big stocks (especially mega cap) virtually all year long, he explains. Similarly, U.S. earnings growth overshadowed earnings growth elsewhere, enabling U.S. stocks to win versus international once again, he adds.
- Health care and financials outperform energy and utilities. This prediction appears to be a draw. Doll notes that energy and financial stocks recorded the best sector performance in 2021. And while healthcare beat utilities, the “magnitude of beat” was not strong enough to overcome the energy over financials headwind. “Importantly, cyclical sectors (energy and financials) beat the defensive sectors (healthcare and utilities),” he further observes.
- U.S. federal debt rises to more than 100% of GDP on its way to an all-time high. Here, Doll acknowledges that this was not the most difficult prediction to make, as federal debt soared even more than they expected. Doll warns that this extreme borrowing will eventually haunt the U.S. and will be exacerbated if interest rates rise significantly.
- The U.S./China cold war continues, but the conversation becomes quieter and more multilateral. While noting that it seems the U.S. and China have virtually no common interests and that the two countries appear to be on a collision course, he remarks that the dialogue has become quieter and more multilateral in the meantime.
- Despite polarization, President Biden, Sen. McConnell and moderate forces achieve some compromise legislation. Not surprisingly, Doll notes that this prediction was “doomed in January” after the two Georgia Senate runoff elections went to the Democrats. Doll says he anticipated that a Republican would win at least one of the seats. Nevertheless, a significant bipartisan infrastructure bill was passed late in the year, he adds.
As for what next year holds for investors, Doll notes that his predictions for 2022 will be released on New Year’s Eve.
