Bob Doll's 10 predictions for 2016 are out - here's his presentation to back them up
"We have never had 10 years in a row in this country where real GDP [growth] is below 3% and nominal GDP is below 5%," Doll said.
Some would argue, and I'm not trying not to be political on this, undue amounts of regulatory overhang keep out economy from growing," Doll said. "I happen to agree with that.
Doll said that he expects employment growth to stay "relatively strong" and jobs growth was "one of the bright points of the economy."
Many doubt the business cycle. Are we going to have a recession?" said Doll. "I would argue that probability is never 0, but it isn't much higher than that now.
Doll also cited labor's share of GDP, which is starting to increase, as a sign that we are more in the middle of the cycle.
Doll said that commodity-based economies outside of the US will have another tough year.
Doll said that bond yields will move higher aided by the Federal Reserve, an improving US economy, and slightly higher inflation.
Doll predicts that inflation will move "from very low to low."
We think it moves higher, not to unacceptable or concerning inflationary levels," said Doll. "Just enough to be another part of the tailwind story for the US consumer.
Treasury yields expectations, said Doll, "underscores out view of under-weighting fixed income."
"We lean more towards the market and the Fed will slowly bring those dots down," said Doll.
"If I can get double the spread [based on historical averages] and only half the default rate, I think that's an interesting combination," said Doll.
!["If I can get double the spread [based on historical averages] and only half the default rate, I think that](https://staticbiassets.in/thumb/msid-50490432,width-700,height-525,imgsize-510250/if-i-can-get-double-the-spread-based-on-historical-averages-and-only-half-the-default-rate-i-think-thats-an-interesting-combination-said-doll-.jpg)
"I believe that 2015's biggest disappointment was the consistent decline in earnings expectations," said Doll.
Doll said that the consensus of 9% earnings growth was in "dreamland." His guess was around 5%, 3% from revenues and 2% from share buybacks.
"I still think we have an okay market if we have $124 [earnings per share]," Doll said.
!["I still think we have an okay market if we have $124 [earnings per share]," Doll said.](https://staticbiassets.in/thumb/msid-50490435,width-700,height-525,imgsize-433763/i-still-think-we-have-an-okay-market-if-we-have-124-earnings-per-share-doll-said-.jpg)
Doll said that the expectation for improving profit margins would be a "tough act to follow."
Doll also referenced a chart from Deutsche Bank's Torsten Slok, highlighting the difference between the US economy and the US stock market's composition.
According to Doll, the last time we had single digit returns (positive or negative) in back to back years was 1977 and 1978. But, he said, it will happen again this year.
Doll highlighted the fact that Presidential elections usually coincide with stock gains, except in the current situation, when the President is forced to leave after an 8 year term.
Doll said that the combination of factors in an election year point to lower returns.
Doll reiterated that earnings will grow the stock market, so with the low earnings environment so too will come low returns.
Doll noted that none of the factors that contribute to the end of bull markets are present. He said that this "could be one of the longest bull cycles on record."
That does not mean there are not risks," Doll said. "I stopped at 8, but you could keep going and going.
Doll said that stocks "barely eked" out gains over bonds last year, and he expects that razor margin to continue in 2016.
Doll supported this assertion by pointing to the impact of an initial Fed rate hike on both stocks and bonds in the following 12 months.
Doll said that he would suggest moving money out of bonds and into cash and equities for the year.
One key trend will be reversed, Doll argued. "With the exception on equities in 2012, US has outperformed non-US stocks and bonds for six years in a row," he said. This will not continue.
For this prediction to happen, said Doll, the trends that have to occur are "in some sense the opposite of what we're witnessing in the first week of this new year."
"In 10 years, we will talk about India just like we talk about China today," Said Doll.
Financials we moved to the positive list for the first time in a long time," said Doll. "We believe these are the cheapest cyclicals and with some move making in short term interest rates we should get some help there.
Doll also said that telecoms were his defensive group, preferring it to utilities because it is cheaper with better fundamentals.
Doll said the current state of a terrorism "bull markets" is the "new normal."
Doll said that cyber attacks and the needed security is "the way of the world as long as technology keeps advancing."
"Globalization makes it tougher for people to retain jobs, because someone does it better than I do and they take the job away," said Doll.
One of the unsung positives in the last several years has been the collapse of the federal budget deficit," said Doll. "That sadly, is in the rearview mirror. The era of fiscal austerity is over.
Doll called 2015 the "trough" for the deficit.
The "silver lining", said Doll, is that increased federal spending will help contribute to GDP growth for the first time in years.
"If Donald Trump is the nominee for the Republican Part, it will undoubtedly in my view cost the Republicans the Senate and cause significant damage in the House," said Doll.
While Doll said he is predicting a Republican sweep, he admitted he doesn't really know and that it will be "a wild year."
Bob Doll's 10 predictions for 2016 are out - here's his presentation to back them up
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