Equity strategist Bob Doll, recently hired at Nuveen after leaving BlackRock last fall, kicked off the new year in New York on Tuesday with his top 10 list of market and economy predictions for 2013.
The typically bullish Doll, hired to serve Chicago-based Nuveen Asset Management as senior portfolio manager of its asset-management operations, predicts that the U.S. stock market will hit record highs even as the economy struggles, and he likes emerging-market equities even more. His bullishness doesn't extend to Europe, although even in that region he expects a climb out of recession.
Overall, Doll is cautiously optimistic on equities, and clearly waiting for the other shoe to drop on bonds. Investors would do well to steer clear of bond funds, he said, noting that fixed-income portfolios will trade down as interest rates meander higher in 2013. Smart investment will head into large-cap stock funds and the emerging markets, with companies that have a cyclical focus and lots of free cash flow, Doll said.
Looking at a handful of "base cases," Doll (left) said the most likely future for the U.S. markets is a bond coupon "at best," $108 S&P 500 earnings, 14.5x P/E and an S&P 500 target of 1,550.
"In the broadest terms, 2013 will see the United States experience a more 'muddle-through economy' and a 'grind-higher' equity market," he said in a statement. "Our somewhat constructive outlook is not driven by expectations for a strong acceleration in global growth, but rather a modest improvement leading to increased business spending which will make the recovery broader and more sustainable than has been the case since the Great Recession ended."
Before making the move to Nuveen, Doll was lead manager of the BlackRock Large Cap Growth Fund, Large Cap Value Fund and Large Cap Core Fund, and prior to that, he managed a series of large-cap Merrill Lynch funds.
As a big name in the industry, Doll has won both accolades and derision for his predictions, but either way, his tea-leaf readings are closely studied by market watchers. Doll himself awarded his 2012 predictions a score of 6 out of 10, saying for example that he correctly judged that U.S. equities would experience a double-digit percentage return but that he mistakenly believed Republicans would capture the Senate and defeat President Barack Obama.
That said, here are Doll's 10 predictions for 2013.
1. The U.S. economy continues to muddle through with nominal growth below 5% for the seventh year in a row. Employment is improving and the corporate sector is strong, but wages are low with continued consumer deleveraging and uncertainty fears about taxes and health care, Doll said at the New York briefing. "We will not see a recession, but on the other hand, we won't see acceleration, either."
2. Europe begins to exit recession by the end of year as the ECB eases and financial stresses lessen. "I'm not arguing for good news this year out of Europe; I'm arguing for less bad news," Doll said. He cited Citi Research data that shows European growth at a negative rate of 0.9% in the first quarter but moving toward a negative rate of just 0.2% by the end of the year.
