In the words of Bob Doll, chief equity strategist and senior portfolio manager at Nuveen Asset Management, this has been the “least believable bull market of our careers.” The disconnect between broad malaise in the economy and the charging bull market has betrayed the fact that, no matter what Wall Street thinks of U.S. companies, Main Street America has for the past few years seen stagnant wages, high energy prices and unemployment.
And they’ve had no faith. At least not until now.
Doll gave his top 10 predictions for 2015 at a Manhattan breakfast Wednesday morning, and the sentiment for the economy—this virtuous cycle of falling energy prices and a stronger dollar—was overwhelmingly positive. Most important is that Main Street now believes.
Unemployment has fallen. The dollar is stronger. Manufacturing has picked up. And, probably most important for consumers, energy prices have rapidly fallen. This has awakened the American consumer, who, with more in pocket, is likely to pass on his or her confidence in the form of more purchases, a virtuous circle that will wake up corporate earnings. In many cases, in the past few years, people have been parking money in U.S. stocks because there’s been nowhere else to go. Now, it’s the earnings that are going to be a bigger part of the math, Doll said.
“My theme this year is ‘increasing belief,” he said. “I think the dichotomy between a mediocre U.S. economy and a really good, if not great, U.S. stock market has been the reason people have not gotten enthusiastic. I’m not working, or my neighbor is not working or my friend hasn’t had a raise in five years. I don’t feel so good about things. And yet the stock market goes higher. What’s that all about?”
In 2015, however, there will be more people employed and wages will thus improve. Consumer spending will improve apace at a time of low inflation. “The consumer perhaps is the biggest delta in 2015,” he said. “Hiring at this point in time is at the fastest pace we’ve seen in 25 years. I meet a lot of people who think the job market is not good. That’s just not true.”
Also, commodity prices are falling and inflation is still low, meaning financing is still cheap.
What this all amounts to is a GDP that should be closer to 3%, he says, which will make a huge difference, he said.
And the U.S. is getting by with a little help from our friends overseas—which are keeping commodity prices and interest rates low. Quantitative easing, which is winding down over here, will likely wind up overseas. Some think troubles overseas might sink the U.S., but Doll said it won't since the U.S. is more insulated, with less dependence on exports than a place like Germany. "The low interest rate easing policy on the part of most notably the [European Central Bank] and the Bank of Japan are helpful to keep the liquidity reasonably good despite the fact that the Bank of England and the U.S. Fed will begin the raising of rates."
This means different things for the stock market. We’re now going, he said, “from a period of time where stocks have gone up a 20-plus-percent compound return for over five years on the backs of stronger earnings and rising P/Es to one where it’s probably earnings that are going to drive the boat, which means the pace of gains is likely to be slower.