“The world improves, but do markets already know?” is the theme for Bob Doll’s 2021 annual predictions, reflecting a somewhat divided outlook between the global economy and his firm’s market outlook.
As he has for 30 years, Doll, Nuveen’s Senior Portfolio Manager & Chief Equity Strategist, offers annual predictions on the trends and issues he believes are positioned to shape the economy and markets for the coming year.
A year ago, Doll predicted that “uncertainties diminish, but markets struggle” in 2020, but that, of course, was before the pandemic struck. For the first time in those 30 years of offering predictions, he released a “revised” set of predictions in April 2020 to reflect how much the world had changed.
So what does he see for 2021? “We enter 2021 with investor optimism running high and equities discounting a lot of good news, raising the question as to whether 2020 has already ‘borrowed’ some of 2021’s returns,” writes Doll.
He observes that investors have grown “increasingly bullish” as the market has reached new highs, and extreme sentiment readings could represent a near-term risk for equities. “But, in general, as the population gets inoculated and large parts of the economy reopen, a virtuous cycle of increasing consumer and business confidence should boost GDP and provide for strong corporate profit growth,” says Doll.
He further notes that this backdrop should be a positive for equity markets. “Stocks should get a boost from an economic recovery combined with continued hyper-accommodative monetary policy, fiscal support for households and businesses and negative real returns on government bonds,” Doll suggests. He also expects the exuberance will lead to modest increases in inflation and interest rates further out the Treasury yield curve.
Against that backdrop, here are Doll’s 10 predictions for 2021:
- U.S. real GDP increases at its fastest pace in 20 years.
- Inflation approaches 2% as the 10-year U.S. Treasury yield reaches 1.5%.
- The U.S. dollar sinks to a five-year low.
- Stocks reach a new high for the 12th consecutive year, but fail to keep pace with strong earnings growth.
- Stocks outperform cash, but cash outperforms Treasury bonds for the first time since 2013.
- Value, small and non-U.S. stocks (especially EM) outperform growth, big and U.S. stocks.
- Health care and financials outperform energy and utilities.
- U.S. federal debt rises to more than 100% of GDP on its way to an all-time high.
- The U.S./China cold war continues, but the conversation becomes quieter and more multilateral.
- Despite polarization, President Biden, Senate Majority Leader Mitch McConnell and moderate forces achieve some compromise legislation.
