10 (Super) Bold Predictions for 2019: Bob Doll

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This guy is good.  Nuveen market soothsayer Bob Doll is out with his high-profile predictions for 2019, and they once again don’t disappoint, staking bold positions on the economy, politics, Fed action and more.

But first a review and scoring of previous annum’s predictions, a year Doll, Nuveen’s senior portfolio manager and chief equity strategist, called “less perfect” than 2017, but still a “solid year for investors.”

Here’s how 2018 shook out:

1. U.S. real GDP reaches 3 percent and nominal GDP 5 percent for the first time in over a decade. Correct
2. Despite ongoing protectionism, the global expansion continues with the fewest countries in recession in history. Correct
3. Unemployment falls to the lowest level in nearly 50 years as wage growth is the highest since the Great Recession. Correct
4. The yield curve flattens (but does not invert) as the 10-year Treasury yield reaches 3 percent for the first time since 2014. Correct
5. Stocks enjoy the longest bull market in history but experience a 5+ percent correction after the longest period without one. Correct
6. U.S. equity returns lag earnings growth for the first time in six years, the longest streak in decades. Correct
7. Equities beat bonds for the seventh consecutive year for the first time in nearly a century. Incorrect
8. Corporate capital expenditures increase at the expense of share buybacks. Half-correct
9. Telecommunication services, information technology and health care outperform utilities, energy and materials. Correct
10. Republicans lose the House, retain the Senate and further distance themselves from President Trump. Correct

And now …

10 PREDICTIONS FOR 2019 – Choppy and frustrating, but no recession

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

The U.S. is currently in the midst of the slowest expansion in modern history. Despite (or maybe because of) that, if this expansion lasts until 30 Jun 2019, it will become the longest ever economic upcycle.

Unemployment bottoms in 2019 while wage growth continues to rise.

The unemployment rate in the U.S. fell to its lowest level in 50 years. Whether the economy reaches a 65-year low of 3.4 percent remains to be seen, but we expect the cycle low may be achieved in 2019.

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

Further flattening is likely in 2019. Similarly, widening credit spreads are generally not encouraging for the business cycle (or for risk assets), but the degree of widening has been relatively small compared to other cycles.

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

The current consensus estimates for 2019 and 2020 S&P 500 earnings-per-share growth are 9 percent and 10 percent, respectively. We think a more reasonable target would be 6 percent and 5 percent.

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

U.S. stocks have reached a new cycle high every year since their bottom in 2009. Sadly, that streak is likely to be broken in 2019, but prospects for equities could still be quite good. Our year-end 2019 target for the S&P 500 Index is around 2,650, implying a decent year for stocks.

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

U.S. economic growth, earnings growth and earnings revisions have outpaced non-U.S. in all three categories over the last several years. So, it is no surprise that U.S. stocks have handily outpaced non-U.S. stocks. At a minimum, we believe these comparisons will narrow and that the U.S. dollar will decline. As a result, non-U.S. markets will likely begin to outperform at some point over the next 12 months.

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

Technology stocks continue to show good earnings growth, strong balance sheets and some valuation attractiveness. After a negative view toward financials in 2018, we think their cheapness, coupled with better balance sheets, should lead to relative outperformance.

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

It is mind-boggling that we would even be approaching a trillion-dollar federal budget deficit in the tenth year of an economic upcycle. The probability of significant additional spending on new programs is unlikely given the divided Congress, but a modestly sized infrastructure plan is not out of the question.

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

The political environment is increasingly contentious, troublesome, unpredictable, unpleasant and, perhaps, dangerous. The U.S./China conflict is troubling and seems to be broader than mere trade policy. Judging how these issues might influence economies and financial markets is complicated, but they are unlikely to be positive.

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

The dust has barely settled from the 2018 midterm elections, and 2020 presidential politics are already heating up. While most are expecting a large number of Democrats to announce a bid for the presidency, we also expect that President Trump will be challenged from within his own party.