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Halfway Through a ‘Year of Transition’

At the beginning of the year, Nuveen’s Bob Doll labeled 2017 as a “Year of Transition.” Halfway through the year, he updates his Top 10 list of economic indicators.

In his mid-year update, Doll noted that improving economic growth, accelerating corporate earnings, rising interest rates and climbing volatility were expected. “At the midpoint of the year, the fate of some of our predictions remains uncertain, but more are trending correct than heading in the wrong direction,” he writes.

The factors Doll sees as “heading in the right direction” are:


  • Unemployment drops to its lowest level in 17 years as wages increase at the fastest pace since the Great Recession.

  • The financials, health care and information technology sectors outperform energy, utilities and materials.

  • Active managers’ performance improves as flows into equities rise.

  • Nationalist and protectionist trends rise as pro-domestic policies are pursued globally.

  • Initial optimism about the Trump agenda fades in light of slow legislative progress


Here’s a look at the other trends Doll highlighted:

U.S. and global economic growth improves modestly as the dollar strengthens and reaches parity with the euro. Growth remains in Doll’s “too early to call” category. He notes that growth appears to have improved in the second quarter for many reasons, including increased inventory levels, and could approach 3%. While the global economy also seems to be improving, China remains a “persistent weak spot.” He goes on to note that his prediction was on the wrong side of this second prediction, as the dollar has weakened in the face of stronger non-U.S. economic growth.

Treasury yields move higher for a third consecutive year for the first time in 36 years as the Fed raises rates at least twice. Though the Fed raised interest rates for the second time this year in June, and has indicated one more rate hike would be likely, Doll notes that Treasury yields are nearly unchanged from where they were at the start of the year.

Stocks hit their 2017 highs in the first half of the year as earnings rise but price/earnings multiples fall. Equity markets hover close to their all-time highs, but the momentum that dominated the first part of the year has faded, Doll notes, though earnings have improved dramatically.

Stocks outperform bonds for the sixth year in a row for the first time in 20 years while volatility rises. Doll notes that stocks are currently comfortably ahead of bonds, and while volatility has actually fallen to its lowest level in several years, Doll says he expects it to pick up in the coming months.

Small caps, cyclical sectors and value styles beat large caps, defensive and growth areas. This is the only item Doll deems to be heading in the wrong direction. “As of the end of the second quarter, cyclicals are actually slightly ahead of defensive areas, he notes. “We expect economic growth to rebound this year, which should lead investors to bid up small cap stocks as well as cyclical and value sectors.”

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