The bloodletting at the end of the year created opportunities, according to the report.
“Valuations have improved due to the selloff, suggesting more upside potential for prices,” the report said. Doll also said that bonds, which closed the year flat, are likely to continue their sluggish ways this year.
Why is the upside stock market cycle still operating and why is the economy not headed for a recession this year?
Doll cited several factors. “For instance, the U.S. consumer is in fantastic shape. He adds that wage growth has begun to pick up, the saving rates are good and, with consumers constituting about 70 percent of the economy, “that will help lead the earnings story.”
Another factor keeping the economy growing will be the logic, or illogic, of a trade war. The dispute will eventually lead both nations to find compromises, Doll predicted. “Both Trump and the Chinese leadership need a win,” he said.
What should advisors do?
Doll, an active manager, says financial professionals should prepare for “choppy markets, but also for a rally and no recession.” He said advisors should focus more “on alpha, not beta. Security selection is becoming far more important than just what asset class you own.”
He also says advisors should diversify across asset classes and geographies. He argues that one just can’t buy large-cap U.S. equities. “You once did well with that strategy, but now you have to be more diversified,” Doll says.
Watch inflation carefully, he adds, warning that the Fed hasn’t necessarily solved the inflation problem. And consider “an absolute return strategy to compliment market exposures.” He said the latter is based on the recognition that returns in the stock market in this environment are often “anemic.”