As stocks bounce back from concerns over the success of President Donald Trump's agenda in the wake of the failure of the Republican health care reform bill last week, equity strategist Bob Doll says there is a possibility of a correction in the air.
But that doesn't mean the Nuveen executive has turned into a bear. "We may see a correction, but this bull market isn't over," he wrote in his latest weekly outlook.
In the short term, though, he sees internal market dynamics suggesting the start of "a broader correction."
Risk assets, such as equities, have been resilient in recent months but are now shifting.
"Higher-risk areas such as small caps, cyclical sectors and some fixed income credit sectors have been flagging [as of Friday], which could be a precursor to a broader risk asset selloff," he explained.
In addition, the positive momentum behind U.S. stocks could be shifting to non-U.S. markets.
"U.S. stocks have outperformed their international counterparts for years, but that trend may be changing. As non-U.S. economic and earnings growth improves, the leadership baton may be passing to other markets," Doll stated.
Last week, equities had their largest one-week decline since the election, with the S&P 500 falling 1.4%.
"Small-cap stocks, financials and industrials fared the worst last week, with utilities and REITs gaining ground," the Nuveen strategist said. "Treasury prices rallied for a second straight week, while the U.S. dollar fell for the third week."
Tax Reform
A week ago, Doll said that investors should focus more on Trump's tax maneuvers rather than on health care and the budget.
This week, though, he is expressing some pessimism as to Trump's ability to make tax changes happen.