Veteran equities PM Bob Doll
presented a cautiously optimistic view of the markets today during a news event featuring his ten predictions for the New Year.
This is Doll's first annual predictions presentation since leaving BlackRock
last year and joining Nuveen Asset Management
]. He now serves chief equity strategist and senior portfolio manager at the Chicago-based mutual fund shop.
During the event, held at the Peninsula Hotel in Manhattan, Doll aimed his comments at calming investors still queasy with roiling equity values. Roughly fifteen members of the financial press were in attendance.
When asked by an MFWire
what the smarter stock funds will do to take advantage of the quirky economy this year, Doll outlined a number of pointers. Smarter funds will be increasing their equity allocations, will keep close tabs on the fluctuation of their fixed income portfolios, develop a more cyclical focus on all their assets and continue to invest in companies with positive cash flow.
Yet, Doll said that until investors see stocks going up, and bonds going down, inflows into stock funds will remain tepid.
Doll outlined the following predictions for 2013:
1. The U.S. economy continues to muddle through with nominal growth below five percent for the seventh year in a row.
2. Europe begins to exit recession by the end of the year as the European Central Bank eases and financial stresses lessen.
3. The U.S. yield curve steepens as financial risks recede and deflationary threats lessen.
4. U.S. stocks record a new all-time high as stocks advance for the fifth year in a row.
5.Emerging market equities outperform developed market equities.
6. After two years of underperformance, U.S. multinationals outperform defensive companies.
7. Large-cap stocks outperform small-cap stocks and cyclical companies outperform defensive companies.
8. Dividends increase at a double-digit rate as payout ratios rise.
9. A nascent U.S. manufacturing renaissance continues, powered by cheap natural gas.
10. The U.S. government passes a $2-3 trillion ten-year budget deal.
Doll poked fun at his tea leaf reading, quoting Yankees manager Casey Stengel on the subject: "Don't make predictions, especially about the future."
Doll used such phrases as "muddle-through economy" and "grind-higher equity market" to characterize the economy of 2013.
He noted the ongoing tug-of-war between debt deflation and reflation initiatives, a more daunting than usual political season and the first fiscal cliff that helped contribute to a struggling mediocre economy that will remain so this year.
However, Doll noted a number of reasons for optimism about equities: healthier consumer and corporate balance sheets, healing in the European economies, and expectation of further policies designed to further kickstart the economy. Other forces included rising real wages and lowering government debt.
He offered a target for the S&P 500 of 1550.
"It will be a constructive year for risk assets," he said.
Moreover, he stressed cautious optimism. Unemployment will remain stubbornly high, for instance.
"Some days it will look OK and some days it wont't look so good at all," he said.
A key variable in this equation will be corporate spending. "America has record cash on balance sheets, will it be spent."
The deciding factor of course, will be confidence, he said.
"We are missing one word. Confidence. Until confidence reins we will continue through this muddle through," he said.
He also pulled no punches critiquing his predictions for 2012 -- ultimately giving himself a 6 out of 10.
His predictions for last year and the grading are as follows:
1. The European debt crisis begins to ease, even as Europe experiences a recession. CORRECT.
2. The U.S. economy continues to muddle through yet again. CORRECT.
3. Despite slowing growth, China and India contribute to more than half of the world's economic growth. CORRECT.
4. U.S. earnings grow moderately, but fail to exceed estimates for the first time since the Great Recession. CORRECT.
5. Treasury rates rise and quality spreads fall. HALF-CORRECT.
6. U.S. equities experience a double-digit percentage return as multiples rise modestly for the first time since the Great Recession. CORRECT.
7. U.S. stocks outperform non-U.S. markets for the third year in a row. INCORRECT.
8. Company dividends and share buybacks hit a record high. HALF-CORRECT.
9. Healthcare and energy outperform utilities and financials. INCORRECT.
10. Republicans capture the Senate, retain the House and defeat President Obama. INCORRECT.
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