- Overall, Rob Doll expects that 2016 will present difficulties for investors, but he still believes there are reasons for optimism
- The key to determining the direction of equities next year may well be the direction of corporate earnings
- If global economic growth broadens and improves, that could allow corporate revenues and earnings to strengthen
On his weekly commentary, Bob Doll, chief equity strategist and senior portfolio manager at Nuveen Investments, expressed his thoughts on what happened in the markets during 2015, and shared his predictions for 2016.
For investors, this past year was difficult, but not disastrous. A weather-induced U.S. economic slowdown kicked off 2015, and headlines declared a possible messy exit by Greece from the Eurozone. During the summer, a decelerating Chinese economy led to the surprising devaluation of the yuan. In August, this helped trigger a massive drop in U.S. equity markets. As the fall began, investors grew uneasy over the prospects of Federal Reserve tightening. A late-year meltdown in commodities hurt resource-based industries and economies around the world. Geopolitical crises, terrorism and a bizarre U.S. political backdrop all helped boost uncertainty.
The chief headwind for equities was weak corporate earnings. Not surprisingly, the rising U.S. dollar and falling oil prices hurt the energy, materials and industrials sectors. However, these same factors failed to lift consumer-oriented and other "energy-using" sectors. The key to determining the direction of equities next year may well be the direction of corporate earnings.
Despite the negativity and uncertainty, the investing world saw several bright spots in 2015. The U.S. economy grew modestly and unemployment declined significantly. The housing and banking sectors improved. Consumer spending remained strong. The federal deficit fell sharply. And equity markets proved to be resilient, despite downward pressure. Will next year be dominated by the negatives? Will the positives win? Or will confusion and uncertainty continue? With this backdrop, Rob Doll offers his predictions for 2016:
- U.S. real GDP remains below 3% and nominal GDP below 5% for an unprecedented tenth year in a row.
- U.S. Treasury rates rise for a second year, but high yield spreads fall.
- S&P 500 earnings make limited headway as consumer spending advances are partially offset by oil, the dollar and wage rates.
- For the first time in almost 40 years, U.S. equities experience a single-digit percentage change for the second year in a row.
- Stocks outperform bonds for the fifth consecutive year.
- Non-U.S. equities outperform domestic equities, while non-U.S. fixed income outperforms domestic fixed income.
- Information technology, financials and telecommunication services outperform energy, materials and utilities.
- Geopolitics, terrorism and cyberattacks continue to haunt investors but have little market impact.
- The federal budget deficit rises in dollars and as a percentage of GDP for the first time in seven years.
- Republicans retain the House and the Senate and capture the White House.
Overall, Rob Doll expects that 2016 will present difficulties for investors, but he still believes there are reasons for optimism. If global economic growth broadens and improves, that could allow corporate revenues and earnings to strengthen. Such a backdrop, combined with still-low inflation and still-easy monetary policy, should allow equities to improve further. Rob Doll encourages investors to maintain overweight positions in equities, and expects 2016 will be another year in which selectivity is paramount to investors' success.