It’s probably safe to say that when Nuveen’s Senior Portfolio Manager & Chief Equity Strategist sat down at the end of 2019 to write his annual predictions for 2020, he didn’t factor in a global pandemic.
Consequently, Doll notes in an update to his earlier 2020 outlook that his original set of predictions was “thrown for a loop.” In his original 2020 outlook, Doll predicted that “uncertainties diminish, but markets struggle… Economic growth could pick up as we head into 2020, but we don’t think stocks will come close to the lofty results they reached this past year,” which seemed to holding true.
Doll now writes, however, that the coronavirus pandemic and the resulting countermeasures have changed everything. “Outside of widespread war, the world has never witnessed such a massive shutdown of business and everyday life,” Doll says, adding that, “The global economy is in the midst of its worst shock since the 2008 financial crisis (and maybe since the Great Depression).”
And unfortunately, he says this recession will be “deep, painful and rapid.” He notes that in early March, consensus expectations for 2020 global GDP growth were +3%, but now they are -3%, resulting in a 6% swing that would be unusual over a three-year time period, let alone happening in just one month’s time.
Not all is bad, however. Doll predicts that the economy will likely experience a slow recovery, but it will recover. His firm has been seeing unprecedented weekly unemployment claims, and they predict that broader data for the second quarter is going to be “horrific,” with second quarter growth expected to fall around 25%. “The good news is most of the major world economies were in decent shape before the COVID-19 pandemic, and we’re seeing preliminary signs that new infections are slowing in some hard-hit areas,” Doll writes.
As to whether there will be a “V” or “U” shaped recovery, Doll suggests it could be check-shaped, representing a sharp drop, followed by slow but positive improvement. “At this point, we anticipate growth resuming later in 2020 and into 2021, providing a better and more stable backdrop for equities and credit,” he observes.
Going forward, he says his firm’s views will be shaped by a set of five conclusions, including that the COVID-19 pandemic is an “exogenous shock, not an endogenous structural break,” meaning that the underlying financial and economic health were in good shape before it hit. In addition, he notes that, until the actual virus curve bends, nothing else much matters when it comes to economic growth. Moreover, Doll notes that the monetary and fiscal stimulus was the most massive response to a crisis since World War II, which will help the eventual recovery.
And even though his original set of predictions was thrown for a loop, Doll says they’re going to continue tracking and scoring them through the rest of the year. Still, in the interest of providing investors with updated and more relevant perspective, he’s offering a “mostly new list”—except where noted—that addresses what investors might expect from this point forward.
Here are Doll’s revised predictions for 2020:
- The U.S. and world experience a sharp, but reasonably short recession with noticeable recovery before year-end.
- All-time low yields move higher during the second half, with the 10-year Treasury closing the year above 1%.
- Earnings collapse, but rise smartly by the fourth quarter.
- Stocks, bonds and cash all return less than 5% for only the fourth time in 25 years. (No change from original prediction.)
- The dollar weakens as global growth strengthens in the second half.
- Value and cyclicals outperform growth and defensive stocks in the second half.
- Financials, technology and health care outperform utilities, energy and materials in the second half.
- Active managers outperform their indexes for the first time in a decade. (No change from original prediction.)
- The cold wars within the U.S. and between the U.S. and China continue. (No change from original prediction.)
- The Coronavirus recession and rise in unemployment cause Donald Trump to be a one-term president.
