2014 Ten Predictions

Update From Bob Doll

Bob Doll

Robert C. Doll, CFA

Senior Portfolio Manager, Chief Equity Strategist
Nuveen Asset Management, LLC

Turning Point: Less Fear, More Confidence

The economy is showing signs of improvement, while both equity and bond markets have experienced strong performance (with municipals showing particularly strong results). Overall, we’re making good progress against our predictions, but will need more clarity before we know if we’re on the right track in a few cases.

 

Mid-Year Update

A handful of our predictions remain too early to call, but most appear on the right track.

 

1

The U.S. economy grows 3% as housing starts surpass one million and private employment hits an all-time high

Too Early to Call
Housing appears set to surpass one million housing starts, and private employment hit an all-time high in May.1 First quarter growth was so weak with GDP contracting by 2.9% that it’s going to be tough for the economy to average 3% for the year. But we still expect GDP growth to improve.
2

10-year Treasury yields move toward 3.5% as the Fed completes tapering and holds short-term rate near zero

Too Early to Call
The Fed is on track to complete tapering in the fourth quarter, and we think there is essentially no chance that it will move the fed funds rate higher this year. With the 10-year Treasury ending the quarter at 2.5%,2 the yield portion of this forecast is more uncertain, although we expect yields will end the year higher than where they began.
3

U.S. equities record another good year despite enduring a
10% correction

A Good Start
Equities are certainly off to a good start. So far, we have seen two corrections of over 5% this year (in January and April) but neither reached 10%.2 Given that 10% corrections are far from uncommon during bull markets, our guess is that we will witness such a correction in the next twelve months. At this point, we still believe U.S. equities are on track to end 2014 with returns in the high single digits.
4

Cyclical stocks outperform defensive stocks

Wrong Direction
As the economy improves, we anticipate that cyclicals will outperform defensive stocks for the year as a whole, but as of now we are on the wrong side of this prediction.
5

Dividends, stock buy-backs, capex and M&A all increase at a double-digit rate

A Good Start
To date, global M&A activity is up close to 40% compared to last year,3 while dividends for the S&P 500 have already increased by over 7%.2 Higher levels of share buybacks have been noticeable as well. Capital expenditures have yet to take off, but leading indicators are pointing in the right direction.
6

The U.S. dollar appreciates as U.S. energy and manufacturing trends continue to improve

A Good Start
The dollar is essentially flat year to date. The U.S. Dollar Index (DXY) began the year at 80.0 and ended the second quarter at 79.8.2 Energy production has been going through a multi-year trend of accelerating production and declining U.S. demand.4 Manufacturing trends are also showing improvement, with the latest Industrial Production statistics beating expectations.5
7

Gold falls for the second year and commodity prices languish

Wrong Direction
Gold prices started the year at $1,202, spiked early in the year amid the crisis in Ukraine and then moved unevenly for the last few months to finish the quarter at $1,327.2 Since inflation expectations appear to be rising slightly, it is unlikely we’ll see gold fall for the year as a whole. Commodity prices are also broadly higher for the year, with the Thomson Reuters/CoreCommodity CRB Index up 10.0%.2
8

Municipal bonds, led by high yield, outperform taxable bond counterparts

A Good Start
There have been negative headlines for some municipal markets in 2014 (most notably surrounding Detroit and Puerto Rico), but those have been isolated instances. Municipal bonds as a whole, and high yield municipals in particular, have been stellar performers so far this year and have easily outpaced taxable bonds. As a point of comparison, high yield municipal bonds have returned 7.5% year to date, while high yield corporate bonds are up 5.5%.2
9

Active managers outperform index funds

Too Early to Call
In large cap U.S. equities, the trend of active managers outperforming became evident in July of last year. This prediction is looking muddled at this point since the latest data available show active managers have underperfomed index funds on a year-to-date basis, but have begun showing better results over the last couple of months.3
10

Republicans increase their lead in the House but fall short
of capturing the Senate

Too Early to Call
There have been a few high-profile exceptions (such as Eric Cantor’s defeat), but for the most part, more mainstream candidates with a better chance of being elected in November have been prevailing in Republican primaries. It looks likely to us that Republicans will make gains in both houses. The U.S. Senate is clearly in play, so we won’t know until November if this prediction comes true.
 
 


1 Bureau of Labor Statistics.
2 Morningstar Direct, Bloomberg and Factset as of 6/30/14.
3 Bank of America Merrill Lynch Global Research.
4 U.S. Energy Administration.
5 Federal Reserve.

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Market Update with Bob Doll
September 2014

Bob discusses where he believes the equity markets may head.

Watch video

 

What Should You Expect
for the Rest of 2014?

What Should You Expect for the Rest of 2014?

Bob Doll provides an update on his Ten Predictions.

Watch video

A Word on Risk
The views and opinions expressed are for informational and educational purposes only as of the date of writing and may change at any time based on market or other conditions and may not come to pass. This material is not intended to be relied upon as investment advice or recommendations, does not constitute a solicitation to buy or sell securities and should not be considered specific legal, investment or tax advice. The information provided does not take into account the specific objectives, financial situation, or particular needs of any specific person. All investments carry a certain degree of risk and there is no assurance that an investment will provide positive performance over any period of time. Dividends are not guaranteed. Prices of equity securities may decline significantly over short or extended periods of time. Debt or fixed income securities are subject to market risk, credit risk, and interest rate risk, call risk, tax risk, political and economic risk and income risk. Interest rate risk, as interest rates rise, bond prices fall. Below investment grade or high yield debt securities are subject to liquidity risk and heightened credit risk. Non‐U.S. investments involve risks such as currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets.

Nuveen Asset Management, LLC is a registered investment adviser and an affiliate of Nuveen Investments, Inc.

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