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Investment outlook

Bob Doll's Ten Predictions for 2019: 3Q update

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

Stocks: Resilient, but range-bound


  • Economic and market environment: Economic growth shows some signs of a slow improvement.
  • By the numbers: Volatility remains relatively high, even as stock prices approach their highs.
  • Ten Predictions: As we close in on the end of the year, more of our predictions are trending correct than not.
  • Outlook: The broad trading range may persist, making selectivity critical.
  • Key themes for investors: Investing is likely to be challenging from here. Remaining flexible will be key.

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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 we would avoid a recession or end to the bull market. As we approach the end of the year, more of our predictions are currently trending in the right direction than not.

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%.

It’s probably safe to call this one a lock at this point. Economic growth slowed during the first half of the year, but third quarter growth could come in somewhere above 2%. As of June 30, this current economic expansion became the longest in U.S. history.1

Prediction 2 
Unemployment bottoms in 2019 while wage growth continues to rise.

Unemployment is at 3.5%, a 50-year low.2 Wage growth has also continued to accelerate. We are still not seeing much in the way of inflation pressures, but low rates and rising wages are something to watch.

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

Bond market volatility has moved this prediction all over the place. If the year ended today, we’d call this one half-correct. The yield curve has been inverting on-and-off this year, but ended the quarter with a slightly positive (but flatter) slope, while credit spreads have tightened.3

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, causing earnings growth expectations for 2019 and 2020 to fall close to 7% compared to the start of the year.3 We think 2019 estimates have declined to reasonable levels, but 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 have been stuck in a broad trading range of between 2,700 and 3,000 since the start of 2018, and currently sit at the high end of that range.3 However, equities are comfortably in positive territory for the year, with the S&P 500 Index up 20.6%.3

We think stock prices will remain range-bound, but that doesn't mean we aren't finding opportunities.

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

We are on the wrong side of this prediction given that non-U.S. growth has been slower than we expected and the U.S. dollar has risen. As of the end of the third quarter, the S&P 500 Index (up 20.6%) is ahead of the MSCI World Index ex-U.S. (up 14.1%).3

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

We do not believe a recession is imminent, so we are leaning toward sectors that benefit from improving economic growth. So far, we are on the wrong side of this prediction as a basket of our preferred sectors is up an average of 18.9%, while a basket of our less-preferred is up 24.1%.3

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

Lower taxes and increased spending have pushed the deficit higher. The Congressional Budget Office’s latest projections forecast an average annual deficit of $1.2 trillion over the next 10 years, which is quite astonishing for an economy that is 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 dominated the headlines, other issues such as U.S./Iran tensions and growing political and social discord within the U.S. have also caused 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.

Before some marginal candidates started dropping out, well over 20 Democrats announced runs for the presidency. And at this point, Mark Sanford, Joe Walsh and Bill Weld have announced for the GOP. Add in the escalating drama of an impeachment inquiry, and politics certainly can’t be said to be boring.

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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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