The financial markets' "Goldilocks phase," marked by easing or flat bond yields and improving corporate earnings, is over, at least for now, according to Crossmark Global Investments CEO Bob Doll, who expects volatility to continue in both directions.
"This does not necessarily mean that an equity bear market looms, only that the 'free lunch' is over," Doll said in his weekly newsletter Monday. The recent rise in bond yields and lower U.S. rate cut expectations have been enough to stop the post-October risk rally, he said.
More frequent bouts of "risk-off" are probable now, although "the positive corporate earnings backdrop means that periods of risk-on are probable whenever bond markets calm," Doll wrote.
A contraction in corporate profits is unlikely but investors should prepare for higher volatility and more frequent setbacks for equities, he said.
"The path ahead for stock and credit markets will be bumpier than in the past six months, making the case for further correction more likely than a rally back to the highs," Doll predicted.
Doll noted various market and economic data points in his analysis.
Last week's modest widening in high-yield bond spreads shouldn't be ignored, as a sustained widening would be bearish for equities, he said.
