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

2016 Ten Predictions

A Mid-Year Update
2016 Remains a Frustrating Year

In January, we described 2016 as a year that would likely frustrate both the bulls and the bears. At the halfway point, this is certainly true. With six months to go, the predictions we made at the beginning of the year are mostly on track.

Mid-Year Update: What Will Markets Do From Here?

Bob Doll, Nuveen Asset Management Senior Portfolio Manager and Chief Equity Strategist, takes a look at his predictions for 2016 and offers some advice for investors as they navigate choppy markets.

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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

At this point, getting this prediction correct seems like a slam dunk. The economy grew only 1.1% on a real basis in the first quarter.1 Similar to the last couple of years, we expect a rebound after a weak start to the year, but growth is likely to remain modest. It is hard to imagine real growth exceeding 3% or nominal growth averaging over 5%.

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

We will likely get this prediction half-correct. We think Treasury rates will rise from the current lows, but they may not advance for the year due to global economic weakness and negative global government bond yields. High yield spreads have narrowed from 660 basis points to 594,2 and 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 have been weak over the past year, but we expect a modest recovery over the coming quarters, especially as the drags from falling oil prices and a rapidly rising dollar are fading. As of now, consensus expectations for 2016 S&P 500 earnings-per-share are $117, which is close to the $118 level we saw in 2015.3

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

It’s tough to make a case for a strong equity market in the next six months. But it’s equally hard for us to see how prices could fall dramatically. We think the next six months will look a lot like the last six, as equity prices remain volatile but generally range-bound.

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

As of the end of the second quarter, stocks are trailing bonds (the S&P 500 Index is up 3.8% while the Barclays U.S. Aggregate Bond Index has risen 5.3%).4 If we are correct, and the economy improves slightly, earnings are able to recover modestly and yields start to rise again, we think stocks will be ahead of bonds by year-end.

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

This is another prediction that is trending to be half-correct. U.S. stocks are outperforming non-U.S. equity markets, thanks in part to better economic growth and a stronger dollar. In contrast, non-U.S. fixed income has comfortably outperformed U.S. fixed income. The Barclays Global Aggregate Bond ex U.S. Index is up an impressive 11.9%, as global bond yields have fallen dramatically.4

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

This prediction is clearly heading in the wrong direction. Financials and information technology are the only two negative sectors. In contrast, energy and materials have rallied as oil prices advanced. Telecom and utilities are leading the way as investors seek yield and income. A basket of our favored sectors is currently up 7.1% while our least-favored are up 15.7%.4

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

The Brexit vote sparked near-term uncertainty, but we expect the global and U.S. economies should survive the fallout. Sadly, as the massacre in Orlando shows, terrorism has become increasingly common. 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

Federal spending is rising, and neither Republicans nor Democrats appear focused on budget control. The most recent projections forecast a $534 billion deficit for 2016, an increase of more than $100 billion from 2015. At the same time, the deficit’s percentage of GDP will likely increase from 2.9% to 4.9% this year.5

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

Intense interest in the U.S. elections is likely to increase over the coming months. The polls are trending in the wrong direction for this prediction, but four months is an eternity in politics. If we’ve learned anything this year, it is to expect the unexpected.



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

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How Bob and team combine quantitative and fundamental research to build client portfolios.

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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: Commerce Department
2 Source: Barclays. Spreads reflect the option-adjusted spread of the Barclays High Yield 2% Issuer Capped Index relative to Treasuries
3 Source: Bloomberg
4 Source: Morningstar Direct, Bloomberg and FactSet as of 6/30/16
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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