2014 Ten Predictions

Update From Bob Doll

Bob Doll

Robert C. Doll, CFA

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

A Difficult Climb, but Equities Should Move Higher

At this point, we’re getting more clarity about how our predictions are shaping up. Although we’ll be on the wrong side of some, we think we’ll get more correct than incorrect when all is said and done. For a few, we’ll be coming down to the wire.


Third Quarter Update

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



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

Too Early to Call
It looks all but certain that we’ll get this one half-correct. Housing starts hit the one million mark this summer1 and employment hit an all-time high in May.2 We think the second, third and fourth quarter will easily average over 3% growth, but given the negative print in the first quarter, overall 2014 growth will probably come in shy of 3%.

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

Too Early to Call
We’ll likely also score this as half correct. The 10-year Treasury yield was volatile during the third quarter, but ended close to where it began, at 2.5%.3 We think yields will rise, but they must do so more dramatically than we anticipate to move above the 3% level. For its part, the Fed is set to wind down its tapering program and shouldn’t increase rates until next year.

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

Too Early to Call
Stocks are on track for another good year. We have seen more volatility in recent months, but whether we see an actual 10% dip in the coming months remains to be seen.

Cyclical stocks outperform defensive stocks

Wrong Direction
Barring an extremely sharp turnaround, it looks like we’ll get this prediction wrong, although this doesn’t change our view about most cyclicals looking more attractive than defensive stocks.

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

Right Direction
With ample cash on their balance sheets and corporate management teams feeling more confident about the state of the economy, companies have hardly been shy about putting their cash to work. Dividend payments and stock buy-backs have already increased by a double-digit rate4 and mergers and acquisitions have been on a tear, with Thomson Reuters data showing M&A activity totaling $2.7 trillion so far this year, a 60% year-over-year increase. Companies have not been as eager to commit to capital expenditures, but that trend is starting to change.

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

Right Direction
It took a while, but the U.S. dollar finally started to rise in the third quarter. So far this year, the U.S. Dollar Index (DXY) has risen from 80.0 to 85.9.5 The U.S. energy renaissance has been a remarkable story and the United States appears set to become energy independent by the end of this decade.4 Manufacturing has also been improving, and the Institute of Supply Management’s manufacturing survey recently reached a post-recession high.6

Gold falls for the second year and commodity prices languish

Right Direction
We were on the wrong side of this prediction three months ago, but a sharp commodity market downturn changed our scoring for now. Driven by a drop in oil prices from well over $100 per barrel in June to $91 at the end of the third quarter, the Thomson Reuters/CoreCommodity CRB Index is now down 0.5% for the year.5 Gold prices also fell during the quarter and are now close to where they were at the beginning of the year.5 We expect commodity prices to remain soft in the coming months.

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

Right Direction
Municipal bonds continue to be a market darling, and with signs of progress in troubled local governments such as Puerto Rico and Detroit, we think this asset class can continue to do well. Municipal bonds are comfortably ahead of taxable bonds and municipal high yield bonds have increased an impressive 12.5% for the year.5

Active managers outperform index funds

Wrong Direction
It’s been a tough year for many active managers (although, importantly, not all). The latest data show that only 21% of U.S. large cap equity active managers are ahead of their benchmarks so far this year.7

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

Too Early to Call
We’ll know the results of this one in a few weeks. Since the beginning of the year, the odds have been growing that the Republicans will be able to take the Senate, but the overall results are too close to call at present.

1 Source: U.S. Department of Commerce
2 Source: Bureau of Labor Statistics.
3 Source: Morningstar Direct, Bloomberg and Factset as of 9/30/14.
4 Source: Cornerstone Macro
5 Source: Morningstar Direct, Bloomberg and Factset as of 9/30/14.
6 Source: Institute of Supply Management and Cornerstone Macro
7 Source: Bank of America Merrill Lynch Global Research.

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Market Update with Bob Doll
November 2014

Bob discusses where he believes the equity markets may head.

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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.

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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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