Trusted performance.  Lasting value.

Bob Doll’s 10 predictions for 2016

By Jeff Benjamin

Coming off a 2015 prediction record of seven correct out of 10, Robert Doll, chief market strategist at Nuveen Asset Management, is advising an overweight in equities this year but warning of a bumpy ride ahead.

As part of his annual forecast for the new year, Mr. Doll also expects a modestly stronger dollar, a bottoming for commodity prices and Fed rate hikes “two or three times this year.” Oh, and he’s also “going out on a limb” and predicting that the next U.S. president will be a Republican. But he isn’t ready to say which Republican.

Here are Mr. Doll’s 10 predictions for 2016.

U.S. real GDP remains below 3% and nominal GDP below 5% for an unprecedented 10th year in a row.

“Mediocre economic growth and relatively low inflation have been the hallmark of the current expansion. We don’t expect that to change in 2016.”

U.S. Treasury rates rise for a second year, but high-yield bond spreads fall.

“Many forget, or missed, the fact that 10-year Treasury yields bottomed at 1.43% in July 2012. Since then, rates have meandered irregularly higher as economic growth advanced and the Fed continued to make slow moves toward normalization.”

S&P 500 earnings make limited headway as consumer spending advances are partially offset by oil, the dollar and wage rates.

“We don’t expect the dollar to climb as significantly as it did in 2015, and believe oil prices are bottoming. These twin headwinds should lesson. A notable risk to our view is potential pressure on corporate profit margins.”

For the first time in almost 40 years, U.S. equities experience a single-digit percentage change for the second year in a row.

“It is especially rare for equities to deliver single-digit returns in consecutive years. This last happened in the U.S. in 1977 and 1978. We think a large upside move or large downside move is unlikely given the crosscurrents.”

Stocks outperform bonds for the fifth consecutive year.

“Our best guess is that equities will be up modestly and the broad bond market will lag, weighed down by rising Treasury yields. Accordingly, we favor an overweight in equities versus bonds, and would be especially wary of U.S. Treasuries.”

Non-U.S. equities outperform domestic equities, while non-U.S. fixed income outperforms domestic fixed income.

“Assuming global growth improves, the U.S. will likely surrender its years-long market leadership. I believe 10 years from now we’ll talk about India just like we talk about China today.”

Information technology, financial and telecommunication services outperform energy, materials and utilities.

“As we saw in 2015, we think free cash flow and unit growth will be keys to success in 2016. We also have a modest preference for large caps over small caps and growth styles over value.”

Geopolitics, terrorism and cyberattacks continue to haunt investors but have little market impact.

“Sadly, these issues will likely remain in 2016. The human cost of these issues is heartbreaking, but experience shows that any market impacts will likely be small and temporary.”

The federal budget deficit rises in dollars and as a percentage of GDP for the first time in seven years.

“The federal budget deficit shrank by 70% from its 2009 peak by the end of 2015. That drop was a result of the sequestration following earlier budget impasses as well as improved tax receipts. With the recently passed budget bill, the era of fiscal austerity is over.”

Republicans retain the House and the Senate and capture the White House.

“I’m predicting a Republican sweep. Conventional wisdom and poll numbers suggest Democrats will retain the White House and have a good shot of capturing the Senate. Nevertheless we are going out on a limb.”

Managing an investment portfolio in today’s volatile financial markets requires sophisticated financial tools.