“This will be a year of transition, as markets will return to fundamentals,” said Doll.

2017 might be the year when active managers shine, according to a leading industry analyst.

Rising rates, a growing economy and the uncertainty around U.S. government policies should help active managers outperform passive indexes, said Bob Doll, chief equity strategist for Nuveen Asset Management, addressing attendees at the 2017 Inside ETFs conference in Hollywood, Fla., on Tuesday.

“If active managers can’t outperform now, they should be fired,” said Doll.

Doll’s outlook was mostly positive for the global economy, predicting moderate growth both in the U.S. and around the world.

However, this growth won’t stem from the ambitious platform proposed by President Donald Trump and the Republican congressional leadership, which includes tax cuts and direct fiscal stimulus. It’s more likely that a rise in consumer confidence throughout the year will buoy economies, according to Doll.

“You can’t talk about 2016 without referencing the last two months of the year, when there was a big rise in stocks and a big decline in bonds,” Doll said. “At least half the reason stocks are up and bonds are down is obscured by the election. In reality, the economy got better while nobody was looking.”

As the economy heats up, non-farm payrolls will expand at a monthly average of 150,000 jobs, according to Doll, and unemployment will drop to its lowest level in almost two-decades, creating the fastest increase in wages since the great recession.

The bull market in fixed-income investing ended at some point last year, said Doll, and Treasury yields will continue to increase as the Fed raises interest rates two or three times in 2017. The 10-year yield will likely pass 3 percent before the end of the year, Doll predicted.

Doll also expected the dollar to eventually trade on-par with the euro in 2017.

While the bull market in U.S. equities will turn 8-years-old in 2017, it may have some room to run, said Doll, reminding Inside ETF attendees of John Templeton’s maxim: “Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.”

Markets will begin to transition from skepticism to optimism as 2017 proceeds, said Doll, which means equity returns will be mediocre.

“It will not be just 2017, these things are a process, but the fundamentals support this,” Doll said.

Nevertheless, U.S. equities should outperform fixed income throughout the year, making 2017 the sixth year in a row that has occurred, said Doll, who predicted that the S&P 500 would gain 5 percent to end the year at 2,350.

Yet it may be the end of equities’ impressive run, said Doll.

“My guess is that we’re entering a period where if stocks beat bonds, it’s only because stocks are up a little and bonds are down a little,” Doll said.

When dividends are included, the S&P 500 should return around 7 percent in 2017, but better performance can be found in equal weighting, small caps, international equities, value and sectors like financials, health care and technology -- and “for the first time in a while,” active stock-picking will out perform, said Doll.

Active management tends to outshine passive indexing when small-cap and international stocks outperform their large-cap and domestic peers, according to Doll, as well as when equal-weighted indexes outperform their respective market-cap indexes.

“We’re exiting a world of disinflation or deflation or zero inflation, and we’re entering a period where we’re going to have low-to-positive inflation,” Doll said. “That’s a big change … it’s actually a portfolio manager’s dream, we’re moving the focus from beta to alpha.”

Due to the slow-moving mechanisms of the U.S. government, it may be as late as 2018 before any impact is felt from Trump policies, said Doll.

For one thing, Republicans in Congress favor a starkly different slate of tax reforms than the White House has proposed, and deficit hawks may balk at the $1 trillion in infrastructure spending called for by the president.

“Not all Republicans think alike,” Doll noted. “The House Tea Party Republicans will in no way, shape, or form say yes to the pre-election campaign rhetoric by Trump on taxes, because that rhetoric is deficit-busting.”

It’s possible that in the interim, some of the optimism stemming from Trump’s agenda will begin to fade as the year progresses, said Doll, but in the long run some version of the proposals is likely to become law.