“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.