Bob Doll Checks In on His 10 Predictions for 2023

Related: Bob Doll's 10 Predictions for 2023

With the economic effects of recent Federal Reserve tightening yet to be felt and uncertainty over the central bank's upcoming decisions, Bob Doll, chief investment officer of Crossmark Global Investments, considers it too soon to tell whether many of his 10 predictions for 2023 are on track to materialize. "The future is always uncertain. Calling tops and bottoms is impossible," he said, adding that the future has been looking more uncertain than usual lately. Crossmark, which expects a mild recession this year, cites the Fed's substantial monetary tightening over the past 12 months as the major cause for economic growth to weaken this year. The full effects have just started to be felt, Doll wrote. Crossmark continues to expect the Fed to raise its benchmark interest rate to 5% and keep it there for the year as inflation falls, but not to acceptably low levels, he said. Seven of the last nine tightening cycles have resulted in recession, and the consequences from the Fed's abrupt rate hikes over the past 12 months have not yet fully played out, Doll noted on a webcast last week focused on his 2023 status report. Doll considers earnings estimates to be too high now and anticipates more negative earnings revisions if a recession occurs. The S&P 500 has ranged to and from 5% on either side of 4,000, barring a few days, for the past 12 months, Doll noted on the webcast, saying Crossmark expects the index to end 2023 at 3,930, with volatility throughout the year. The stock market has never hit the bottom before a recession starts, Doll noted, repeating his view that it will breach its October 2022 low "when recession and reduced-earnings expectations sink in." More investors need to lose confidence, Doll suggested. Bullish sentiment "is as high as it was at the peak of the rally from October to February before the banking crisis," he said on the webcast. "We need more people to be pessimistic before we are logically going to see the bottom." The recession that the firm expects this year will likely be mild due to the cash on corporate balance sheets, a relatively healthy corporate sector and a relatively strong banking system, Doll said, adding that the Fed itself now expects a mild recession this year. Profit margins are under pressure but not that far from their all-time highs, and a healthy American consumer has significant cash left from the COVID-19 crisis, Doll said on the webcast. Among other points, Doll suggested investors:

• Expect choppy markets, buying on dips and trimming at rallies
• Focus on corporate earnings growth and free cash flow
• Expect modest equity returns
• Own some bonds, in a shift from his advice a year ago
• Diversify across asset classes and geographic areas, slowly adding more non-U.S. securities
• Own high-quality value and less expensive growth stocks

At the end of the first quarter, Doll found three of his 2023 predictions were heading the right direction, one was going in the wrong direction and six were too soon or to close to call. Check out the gallery for Doll's predictions status update. (Image: Bloomberg)