Robert C. Doll, CFA
Senior Portfolio Manager,
Chief Equity Strategist
Nuveen Asset Management, LLC

2016 Ten Predictions

Quarterly Update:
The Path Remains Difficult for Investors

We expected 2016 to be a tough year for investors, and the first three months of the year have borne this out. Economic and corporate earnings growth will likely remain subdued and financial markets have struggled. We think conditions may improve somewhat as the year progresses, but gains will likely be tough to come by.

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Overall Scoring Right Direction Too Early to Call Wrong Direction
01 U.S. real GDP remains below 3% and nominal GDP below 5% for an unprecedented tenth year in a row Read more Show less Watch video

Growth appears to be mediocre and inflation remains low, so this prediction is solidly on track. We expect first quarter real gross domestic product growth to be around 1% as the positives from the consumer and government sectors are limited by business investment and trade. Growth may accelerate in future quarters, but will likely remain relatively constrained.

Prediction 1Watch Video

02 U.S. Treasury rates rise for a second year, but high yield spreads fall Read more Show less Watch video

Yields fell sharply during the first quarter and failed to move higher when economic data improved. We think this disconnect is likely to end and yields will eventually rise. High yield spreads began the year at 660 basis points, widened over the first few weeks of 2016 and then narrowed, ending the quarter at 656.1 Unless the United States enters into a recession (which we think is highly unlikely), we expect high yield to continue outpacing the broader bond market over the coming 6 to 12 months.

Prediction 2Watch Video

03 S&P 500 earnings make limited headway as consumer spending advances are partially offset by oil, the dollar and wage rates Read more Show less Watch video

At this point, we expect first quarter earnings will decline year-over-year, but we believe corporate profits are bottoming and should improve in the second half of the year. As of now, consensus expectations for S&P 500 earnings-per-share are $118, which matches the results from 2015.2

Prediction 3Watch Video

04 For the first time in almost 40 years, U.S. equities experience a single-digit percentage change for the second year in a row Read more Show less Watch video

So far this year, equity markets ran hard and got nowhere. 2016 will likely be frustrating for both the bulls and the bears, continuing the back-and-forth we saw in the first quarter. We expect equity prices to rise over the coming year, but gains will be limited.

Prediction 4Watch Video

05 Stocks outperform bonds for the fifth consecutive year Read more Show less Watch video

By the end of the year, we think we will get this prediction correct, but as of now we have to put it in the wrong column. Stocks have been handily outperforming bonds over the past six weeks, but they are trailing for the year given the sharp pullback equities experienced during the opening weeks of 2016.3

Prediction 5Watch Video

06 Non-U.S. equities outperform domestic equities, while non-U.S. fixed income outperforms domestic fixed income Read more Show less Watch video

U.S. equities have been a relative safe haven and have outperformed non-U.S. equities (the S&P 500 Index is up 1.4%, while the MSCI World Index (ex-U.S.) is down 1.8%).3 In contrast, non-U.S. fixed income has outperformed U.S. fixed income, thanks in part to weaker overseas growth and monetary policy stimulus (the Barclays Global Aggregate Bond ex U.S. Index is up 8.3%, compared to 3.0% for the Barclays U.S. Aggregate Bond Index).3

Prediction 6Watch Video

07 Information technology, financials and telecommunication services outperform energy, materials and utilities Read more Show less Watch video

A recovery in commodity-oriented sectors such as energy and materials was the sector highlight of the quarter. Telecom and utilities were the two best-performing sectors, while financials was one of the worst. In all, these themes worked against our prediction. Our favored sectors returned an average of 4.7%, while our least-favored are up 7.7%.3

Prediction 7Watch Video

08 Geopolitics, terrorism and cyberattacks continue to haunt investors but have little market impact Read more Show less Watch video

Sadly, cyberattacks have become a fact of life, and numerous geopolitical hot spots have flared up. The horrific attacks in Brussels dominated the headlines at the end of the quarter, but the market impact has been relatively limited.

Prediction 8Watch Video

09 The federal budget deficit rises in dollars and as a percentage of GDP for the first time in seven years Read more Show less Watch video

Federal spending is on the rise as the era of fiscal austerity and the sequester appear to be over. In its latest projections from March, the Congressional Budget Office forecasts a $534 billion deficit for 2016, representing an increase of more than $100 billion from 2015. The CBO is also forecasting an increase in the deficit’s percentage of GDP from 2.9% to 4.9% for this year.

Prediction 9Watch Video

10 Republicans retain the House and the Senate and capture the White House Read more Show less Watch video

This has been an interesting year for politics, to put it mildly. Voters (and investors) are paying increased attention to the political process this year, and the backdrop presents potential risks. Investors loathe political uncertainty, and the more likely it seems that a non-establishment candidate (such as Donald Trump or Bernie Sanders) will become president, the more political headline risk will infiltrate the markets.

Prediction 10Watch Video

RESOURCES

Brochure

2016 Ten Predictions

Access the full Ten Predictions brochure, which includes a 2015 scorecard and a detailed outlook for 2016.

Markets Remain Rocky as Investors Await Clarity
Presentation

2016 Ten Predictions Presentation

Bob provides his Ten Predictions for 2016 and discusses investment themes that may shape the coming year.

2016 Investment Outlook - Ten Predictions from Bob Doll (presentation)

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1 Source: Barclays. Spreads reflect the option-adjusted spread of the Barclays High Yield 2% Issuer Capped Index relative to Treasuries
2 Source: Bloomberg
3 Source: Morningstar Direct, Bloomberg and FactSet as of 3/31/16

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. Investors should contact their tax advisor regarding the suitability of tax-exempt investments in their portfolio. If sold prior to maturity, municipal securities are subject to gain/losses based on the level of interest rates, market conditions and the credit quality of the issuer. Income may be subject to the alternative minimum tax (AMT) and/or state and local taxes, based on state of residence. Income from municipal bonds held by a portfolio could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a bond issuer. 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. Commodity futures and forward contract prices are highly volatile. Investments in commodities may be affected by overall market movements, changes in interest rates, and other factors such as weather, disease, embargoes, and international economic and political developments.

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

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