Investors should expect this year to look a lot like last year, with rocky markets and the need for tactical moves to make gains, says Robert C. Doll, senior portfolio manager and chief equity strategist at Chicago’s Nuveen Asset Management.
Making his annual Top 10 predictions at a press gathering Thursday in New York City, Doll pointed to a number of issues that led to a mostly unrewarding 2015 for investors, including a sharper-than-expected slowdown in China, a meltdown in commodity prices, and weak corporate earnings due mainly to the combination of a strong U.S. dollar and falling oil prices.
Expecting those trends to largely continue, Doll predicts that overall investor returns in 2016 will be “mediocre but better than last year.” He suggests overweighting equities and underweighting bonds, though a bumpy ride means investors have to be willing to “do a little buying when the market dips, and let a little bit go when it rallies.”
Doll anticipates non-U.S. stocks and bonds will outperform domestic equities and fixed income, assuming global growth improves. “Today, we think the United States is growing more robustly than the rest of the world, but we may be near the peak of U.S.-global divergence,” Doll said. “With the Fed raising rates and many other regions remaining in easing mode, U.S. fixed income may struggle on a relative basis.”
That said, emerging markets are poised to remain volatile due to their dependence on commodities, while China’s economic stagnation remains a serious—if not an overwhelming—problem. “If China came unhinged, and I’m not even sure what that means, we’d have a financial crisis, a financial panic,” Doll said. “But we’ve been here before, most recently in the month of August.”
Given that China’s growth has slowed considerably and is expected remain so for the foreseeable future, Doll believes the mantle for the fastest-growing emerging economy has now been passed to India.
In the U.S., low oil prices will continue to be a drag on the energy, utility and materials sectors, while “energy consuming” companies stand to benefit. Doll’s top sector picks are information technology, financials and telecommunications.
One piece of good news for the U.S. economy is that consumer spending is up, and though it remains selective, it should provide modest revenue growth. “I would argue that the U.S. consumer is outperforming everything else,” Doll said.
His Top 10 predictions are as follows:
1. Due to continued mediocre growth and relatively low inflation, U.S. real GDP remains below three percent and nominal GDP below five percent for an unprecedented tenth year in a row.
2. U.S. Treasury rates rise for a second year, but high-yield spreads fall.