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Investment outlook

Bob Doll's Ten Predictions for 2019: 2Q update

Robert C. Doll
Senior Portfolio Manager / Chief Equity Strategist, Nuveen Asset Management
Ten predictions - large 10 over blue background

Stocks may be fully valued, but opportunities remain 


  • Economic and market environment: The global economy may have slowed, but we aren't forecasting a recession.
  • By the numbers: Stocks are up strongly in the first half of the year, but investors are focusing on downside risks.
  • Ten Predictions: At the half way point of the year, most of our predictions are trending in the right direction.
  • Outlook: With stocks fully valued, we think investors should focus on selectivity.
  • Key themes for investors: Investing is likely to be challenging from here. Remaining flexible will be critical.

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Choppy and frustrating, but no recession

We based our 2019 predictions around the theme that markets and economic data would be choppy, but that we would avoid a recession or end to the bull market. While it is still early, most of our predictions are trending in the right direction.

Prediction 1

The U.S. expansion becomes the longest in history despite GDP slowing to a still-above-trend increase of 2% to 2.5%.

We don’t have final second quarter growth numbers yet, but as of the end of the quarter, this current expansion has become the longest in U.S. history.1 The U.S. economy appears to be in a bit of a weak patch, but we remain confident that overall 2019 gross domestic product will grow over 2% for the year. 

Prediction 2 

Unemployment bottoms in 2019 while wage growth continues to rise.

Unemployment has fallen to 3.6% and continues to hover around that level.2 We think unemployment is likely to bottom this year. While wage growth has been increasing at a slower pace than we expected this year, it is trending higher. 

Prediction 3
The Treasury yield curve flattens and credit spreads widen due to late cycle concerns.

The yield curve inverted several times in 2019 and credit spreads tightened at the start of the year before widening over the last couple of months. For the year, the spread between the 2- and 10-year segments of the Treasury yield curve widened from 19 to 25 basis points.3 And the spread between the 10-year Treasury and AAA-rated bonds has tightened by 42 basis points.3 We think fixed income market volatility will persist, making the outcome of this prediction highly uncertain. 

Prediction 4
Corporate earnings growth estimates weaken for 2019 and 2020 as both revenue and profit pressures rise.

Both revenues and profits have come under pressure this year, and as a result, earnings growth expectations for 2019 and 2020 have fallen close to 6% compared to where they were at the start of the year.3 At this point, we think 2019 estimates have come down to reasonable levels, but we think 2020 expectations still appear too high and may fall more.

Prediction 5
U.S. equities experience a positive return, but fail to reach record highs for the first time in 10 years.

Stocks are comfortably up in double digits this year, as the S&P 500 Index has climbed 18.5%.3 The end of the second quarter marks the fourth time that index has been trading in the 2,950 range over the past 18 months (after previously reaching this level in January 2018, September 2018 and May 2019).3 That means stocks really haven’t gone anywhere in a year-and-a-half.

Equities may be fully valued, but we still see select opportunities.

Prediction 6
Non-U.S. stocks outperform U.S. stocks as the dollar sags.

Coming into the year, we expected non-U.S. economic growth to pick up more than it has relative to the U.S. economy. But U.S. growth still remains stronger, and the S&P 500 Index (up 18.5%) is ahead of the MSCI World Index ex-U.S. (up 15.1%).3 The dollar has also been stronger than expected, although if the Federal Reserve does cut rates, the value of the dollar will likely fall.

Prediction 7
The information technology, financial and health care sectors outperform utilities, REITs and materials.

We’re even on this prediction so far. Surprisingly, health care stocks have been held back by political concerns over possible regulations, while utilities have done well since all interest-rate sensitive areas of the market have outperformed as yields have been falling.3 To date, a basket of our favored sectors and less-favored are actually both up 17.5%.3

Prediction 8
The annual federal budget deficit approaches $1 trillion, a level unprecedented absent a recession.

Tax cuts have added to the deficit, and neither political party is showing any interest in reining in federal spending. As of the latest projections in May, the forecast from the Congressional Budget Office for the 2019 fiscal year deficit was closing in on $900 billion, a staggering amount for a country not in recession..

Prediction 9
U.S. and global politics spark more market volatility as the cold wars within the U.S. and with China persist.


Overall market volatility has been rising this year. Although trade issues have been dominating the headlines, other issues such as U.S./Iran tensions and growing political and social discord within the U.S. have also been causing concerns. Judging how these issues might influence economies and financial markets is complicated, but they are unlikely to be positive.

Prediction 10
A double-digit number of Democrats run for president while President Trump is challenged within his own party.

Amazingly, this came to pass early in the year as well over 20 Democrats announced their candidacy. Former Massachusetts governor Bill Weld also announced his candidacy for the GOP nomination, and while his chances appear slim at best, it is a sign of some fracturing between the president and the rest of the Republican Party.

Bob Doll 2Q 2019 10 Predictions 
Market update with Bob Doll

1 Evercore ISI
2 Bureau of Labor Statistics
3 Bloomberg, FactSet and Morningstar Direct

The views and opinions expressed are for informational and educational purposes only as of the date of production/writing and may change without notice at any time based on numerous factors, such as market or other conditions, legal and regulatory developments, additional risks and uncertainties and may not come to pass. This material may contain “forward-looking” information that is not purely historical in nature.

Such information may include, among other things, projections, forecasts, estimates of market returns, and proposed or expected portfolio composition. Any changes to assumptions that may have been made in preparing this material could have a material impact on the information presented herein by way of example. Past performance is no guarantee of future results. Investing involves risk; principal loss is possible.

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability or completeness of, nor liability for, decisions based on such information and it should not be relied on as such.

The S&P 500® Index is a capitalization-weighted index of 500 stocks designed to measure the performance of the broad domestic economy. The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The Nasdaq Composite is a stock market index of the common stocks and similar securities listed on the NASDAQ stock market. The Russell 2000® Index measures the performance of approximately 2,000 small cap companies in the Russell 3000 Index, which is made up of 3,000 of the biggest U.S. stocks. Euro Stoxx 50 is an index of 50 of the largest and most liquid stocks of companies in the eurozone. FTSE 100 Index is a capitalization-weighted index of the 100 most highly capitalized companies traded on the London Stock Exchange. Deutsche Borse AG German Stock Index (DAX Index) is a total return index of 30 selected German blue chip stocks traded on the Frankfurt Stock Exchange. Nikkei 225 Index is a price-weighted average of 225 top-rated Japanese companies listed in the First Section of the Tokyo Stock Exchange. Hong Kong Hang Seng Index is a free-float capitalization-weighted index of a selection of companies from the Stock Exchange of Hong Kong. Shanghai Stock Exchange Composite is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange. The MSCI World Index ex-U.S. is a free float-adjusted market capitalization-weighted index that is designed to measure the equity market performance of developed markets minus the United States. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance of emerging markets. Bloomberg Barclays U.S. Aggregate Bond Index covers the U.S. investment grade fixed rate bond market. The BofA Merrill Lynch 3-Month U.S. Treasury Bill Index is an unmanaged market index of U.S. Treasury securities maturing in 90 days that assumes reinvestment of all income. The Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. The Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values.

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. 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. Foreign investing involves additional risks, including currency fluctuation, political and economic instability, lack of liquidity and differing legal and accounting standards. These risks are magnified in emerging markets. An alternative strategy sells securities that it has borrowed but does not own (“short sales”), which is a speculative technique. A strategy will suffer 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. Losses on short sales arise from increases in the value of the security sold short, and therefore are theoretically unlimited. Because a strategy invests in both long and short equity positions, the strategy has overall exposure to changes in value of equity securities that is far greater than its net asset value. This may magnify gains and losses and increase the volatility of returns. In addition, the use of short sales will increase expenses. Diversification does not assure a profit or protect against a loss. As an asset class, real assets are less developed, more illiquid, and less transparent compared to traditional asset classes. Investments will be subject to risks generally associated with the ownership of real estate-related assets and foreign investing, including changes in economic conditions, currency values, environmental risks, the cost of and ability to obtain insurance, and risks related to leasing of properties. Alternative investments may be illiquid, there may be no liquid secondary market or ready purchasers for such securities, they may not be required to provide periodic pricing or valuation information to investors, there may be delays in distributing tax information to investors, they are not subject to the same regulatory requirements as other types of pooled investment vehicles, and they may be subject to high fees and expenses, which will reduce profits. Alternative investments are not suitable for all investors and should not constitute an entire investment program. Investors may lose all or substantially all of the capital invested. The historical returns achieved by alternative asset vehicles is not a prediction of future performance or a guarantee of future results, and there can be no assurance that comparable returns will be achieved by any strategy.

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