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

2016 Ten Predictions

Quarterly Update
2016 Is Becoming Slightly Less Frustrating

At the beginning of the year, we expected 2016 to be one that frustrated both the bulls and bears. We have seen continuous back-and-forth in economic data and financial markets, but the bulls have been winning recently. At this point, more of our predictions are trending correct than not, but several are still too close to call.

Overall Scoring Right Direction Too Early to Call Wrong Direction

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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

At this point, it’s nearly impossible to imagine how we could get this one incorrect. The economy grew 1.1% in the first quarter and accelerated slightly to 1.4% in the second.1 We expect growth to improve to closer to 2.5% to 3% in the second half of the year, but the slow growth, low inflation environment is likely to persist.

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

Absent a dramatic (and highly unlikely) spike in government bond yields, we will likely get the first half of this prediction wrong. We don’t expect the 10-year Treasury yield to exceed 2.27%, where it started the year.2 High yield spreads have narrowed from 660 basis points to 480,3 an we believe credit sectors remain more attractive than government bonds.

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

Corporate earnings struggled through much of 2015 and into 2016, but it appears we are emerging from the earnings recession. Consensus expectations for 2016 S&P 500 earnings-per-share are $117, which is close to the $118 level in 2015.4

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

Markets were surprisingly calm during most of the third quarter. We expect increased volatility in the coming months, given the uncertainty surrounding the elections and Fed policy, but we think the year-over-year change in stock prices will remain less than 10%.

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

A solid third quarter for the stock market means this prediction is trending in the right direction. As of the end of the third quarter, the S&P 500 Index was up 7.8%, compared to 5.8% for the Bloomberg Barclays U.S. Aggregate Bond Index.2 Stocks may struggle to post additional gains but we believe equities will outperform bonds and cash over the next 12 months.

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

This prediction is likely to finish half-correct. U.S. stocks have outperformed non-U.S. markets, thanks to an improved economic and earnings environment and more clarity over monetary policy. In contrast, non-U.S. fixed income has definitely outpaced U.S. bonds, with the Bloomberg Barclays Global Aggregate Bond ex U.S. Index up 13.1% for the year.2

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

This is the sole prediction that (at this point) we’re almost certainly going to get wrong. Our sector bets look better today than three months ago thanks to a shift in market leadership over the summer, but our preferred group still trails year to date. For the year, a basket of our favored sectors is up 10.4%, while our less-favored are up 15.4%.2

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

Sadly, this prediction has come to pass. Geopolitical events remain in the forefront of investors’ minds, while terrorism, domestic violence and cyberattacks make headlines almost daily. Overall market effects, however, have been limited.

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

This prediction started trending in the right direction at the beginning of the year and its course has accelerated. Government revenues are up slightly this year, but expenditures are up even more.5 The most recent projections from August forecast a $590 billion deficit for 2016, an increase of more than $150 billion from 2015.5 At the same time, the deficit’s percentage of GDP will likely increase from 2.5% to 3.2% this year.5

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

Current polling suggests we’ll get this one mostly wrong. In a close race, it appears more and more likely that Hillary Clinton will be sworn in as the 45th President of the United States. The Senate is also up for grabs, but the House looks to remain in GOP hands.



2016 Ten Predictions

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

Outlook Brightens as Earnings Remain Key

2016 Elections Recap:
What the Results Mean for Investors

How might the new political environment in 2017 affect investment decisions?

2016 Elections Recap: What the Results Mean for Investors

A Matter of Style: From Momentum to Free Cash Flow?

Markets may be experiencing a leadership change that could affect investment strategy.

A Matter of Style: From Momentum to Free Cash Flow?


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Investors: Contact your financial advisor

1 Source: Bureau of Economic Analysis
2 Source: Morningstar Direct, Bloomberg and FactSet as of 9/30/16
3 Source: Bloomberg. Spreads reflect the option-adjusted spread of the Bloomberg Barclays High Yield 2% Issuer Capped Index relative to Treasuries
4 Source: Bloomberg
5 Source: Congressional Budget Office

A Word on Risk
The opinions expressed by the author are for informational 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. These views may differ from other investment professionals at Nuveen Investments and are 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 time period. Equity investments are subject to market risk or the risk that stocks will decline in response to such factors as adverse company news or industry developments or a general economic decline. Debt or fixed income securities are subject to market risk, credit risk, interest rate risk, call risk, tax risk, political and economic risk, and income risk. As interest rates rise, bond prices fall. Non-investment grade bonds involve heightened credit risk, liquidity risk, and potential for default. An investment in any municipal portfolio should be made with an understanding of the risks involved in investing in municipal bonds, such as interest rate risk, credit risk and market risk, including the possible loss of principal. The value of the portfolio will fluctuate based on the value of the underlying securities. Clients 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. 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. Past performance is no guarantee of future results. Short sales is a speculative technique and may cause a loss when the price of a security that it holds long decreases or the price of a security that it has sold short increases. The real estate industry is greatly affected by economic downturns that may persist as well as changes in property values, taxes, and regulatory developments.

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

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