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Doll Predicts ‘Choppy and Frustrating’ 2019

Industry Trends and Research

Robert C. Doll, Nuveen’s Chief Equity Strategist & Senior Portfolio Manager, observes that 2018 proved to be a “Tale of Two Cities,” as investors were confronted with a range of contradictions. But what does he see for the year ahead?

Last week, Doll assessed that his predictions of a “less than perfect” 2018 largely held true, but notes in his 2019 predictions that the coming year provides for a more confusing and conflicted outlook.

Doll – whose annual predictions take a comprehensive look at the trends he believes are positioned to meaningfully shape the economy and markets for the coming year – explains that unemployment ended the year near a 50-year low and wages have been rising, but fears of a recession have increased.

He observes that corporate earnings were strong while stock prices sank into correction territory by the end of the year, leaving investors to now question whether solid fundamentals or growing uncertainty will shape the markets. Among investors’ most prominent concerns are slowing economic and earnings growth, as well as trade issues, but they are also worried about Brexit, the Italian budget stalemate, falling oil prices, political dysfunction and uncertain Federal Reserve policy, according to Doll.

“We have many questions, but we think it is fairly certain that the U.S. will not fall into recession in 2019,” Doll suggests. He expects growth will slow next year compared with 2018, but to a still-above-trend 2%+ level. He notes that his firm doesn’t see any signals that make a reasonable case for recession, explaining that the consumer sector looks strong, particularly the labor market. In addition, Doll notes that the corporate sector is solid, although corporate management teams have scaled back some plans due to trade concerns.

Bullish or Bearish?

Doll further suggests, however, that he can easily make a “bullish or bearish” case for stocks. “We could argue that recession fears will likely fade as data continue to be positive,” he says. “Should that happen, stock prices could again rally on decent fundamentals, especially since valuations are more attractive now than they were a few months ago.” Conversely, he notes that even if the economy continues to grow, investors will become increasingly concerned about slowing earnings growth and will continue looking for reasons to sell, which could produce a “trendless or even falling market” into 2019.

Ultimately, Doll believes markets will remain choppy and stocks will bounce around, but thinks the “bullish factors will generally overpower the bearish ones.” Accordingly, he expects that 2019 market performance will be stronger than 2018 and that a reasonable year-end target range for the S&P 500 Index would be around 2,650, producing a decent gain for stocks. But to achieve that, recession fears cannot be realized, he emphasizes.

“Remaining selective and tactical would seem to be the order of the day. Long-term investors may want to add to positions during periods of weakness and trim holdings during periods of strength,” he says. Additionally, Doll believes that focusing on factors such as high free cash flow, inexpensive valuations, the ability to grow top-line earnings and an eventual tilt toward non-U.S. sources of revenue would benefit investors.

Here are Doll’s 10 predictions for 2019:

  1. The U.S. expansion becomes the longest in history despite GDP slowing to a still-above-trend increase of 2% to 2.5%.

  2. Unemployment bottoms in 2019 while wage growth continues to rise.

  3. The Treasury yield curve flattens and credit spreads widen due to late cycle concerns.

  4. Corporate earnings growth estimates weaken for 2019 and 2020 as both revenue and profit pressures rise.

  5. U.S. equities experience a positive return, but fail to reach record highs for the first time in 10 years.

  6. Non-U.S. stocks outperform U.S. stocks as the dollar sags.

  7. The information technology, financial and healthcare sectors outperform utilities, REITs and materials.

  8. The annual federal budget deficit approaches $1 trillion, a level unprecedented absent a recession.

  9. U.S. and global politics spark more market volatility as the cold wars within the U.S. and with China persist.

  10. A double-digit number of Democrats run for president while President Trump is challenged within his own party.


We’ll check back in December to see how Doll’s predictions fared.