With markets in a funk, advisors will need to look for tactical opportunities to make money for clients, according to one prominent market strategist.

“I see more muddle through” from U.S. stocks, said Bob Doll, a senior portfolio manager and chief equity strategist at Nuveen Asset Management.

The recovery in the U.S. is better than the headlines suggest, he said, but global growth is still challenged and the “whiff of deflation” continues to dampen the markets, Doll told advisors Wednesday at the spring conference of the National Association of Personal Financial Advisors in Phoenix.

Concerns about a possible recession, oil prices, China, interest rate increases and the presidential election have been whipsawing markets, Doll said.

But many of those fears have been overdone, creating some tactical trading opportunities.

“The probability of a recession in the U.S. is around zero,” he said. The consumer is still spending, although traditional retailers are struggling. Wages are moving up as well.

Oil prices have probably bottomed after being severely oversold, Doll said, with supply and demand in better balance now. Doll predicts a “multiyear period of chop” of between $30 to $60 per barrel.

The “dividend” from lower energy prices “is more powerful than the biggest tax cut [consumers] ever got,” Doll said, but has yet to play out. Consumers are only spending a third of the oil dividend and saving two-thirds of it. “Now, you all know consumers very well, and U.S. consumers do not save two-thirds of anything.”

Fears about China being a “big black hole” that will take down the global economy are irrational, he said.

Early this year, an advisor asked him if the recession in China would lead to a recession in the U.S. “I asked him, ‘Where do you get that?’ Here’s someone in our business who knew so little, and actually believed China was in a recession [when] it’s the second fastest-growing economy on the planet. … We’d be delighted to have China’s worst quarter” of economic growth.

China’s issues are typical for any emerging economy, Doll added.

The Federal Reserve has also played a prominent role in whipsawing the markets, Doll said. Risk assets sold off at the beginning of the year when the Federal Reserve indicated it might raise rates four to five times this year. There was another sell-off in February after Fed chair Janet Yellen mentioned negative interest rates.

“If you believe the Fed will increase rates four or five times, you live in La-La Land,” Doll said. “It will probably raise rates once or twice.”

As for negative rates, “the probability is zero,” given that inflation is running near the Fed’s 2 percent target.

The election is the least important thing to fixate on, Doll said. The markets don’t react as much as people think they do when there are changes in a presidential administration, and Republicans look likely to hold on to the House, which markets should favor.

Doll said recent gyrations have created a “fear funk” among investors, which creates tactical opportunities to pick up stocks and sectors that have fallen out of favor. With returns muted, he favors active management over passive.

He recommended overweighting U.S. equities by 5 points, underweighting bonds by 10 points, and keeping an extra 5 points of cash.

“I want some dry powder for the tough days,” he said.

Hazarding a guess, Doll said the S&P 500 could deliver a 7 percent total return this year.
In the longer term, a diversified portfolio may yield 4 to 6 percent yearly over the next decade, Doll said, which is still “an acceptable place to be for wealth accumulation.”