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Nuveen’s Doll optimistic on equities

Robert Doll
Robert Doll

Predictions for 2013 by Robert C. Doll, chief equity strategist and senior portfolio manager at Nuveen Asset Management — if they come true — would be a boon for both sides of a pension fund's balance sheet.

Mr. Doll released his predictions at a media presentation on Tuesday.

Mr. Doll predicts the U.S. equity markets will have gains for the fifth consecutive year and set an all-time high this year. Mr. Doll's base case is for the S&P 500 to end the year at 1,550. Earnings are expected to be $108 with an earnings multiple of around 14.5 times.

Mr. Doll's reasons for equity optimism included “don't fight the Fed,” the possibility of capital spending increases by corporations, reasonable current valuations and significant cash on the sidelines.

Specific equity-related predictions included emerging markets equities outperforming developed markets equities. For example, Brazil and China will outperform the U.K. and Japan, according to Mr. Doll. Mr. Doll believes frontier markets will have similar returns to emerging markets, but disparities between individual frontier markets will be more pronounced than emerging markets. Large-cap stocks will outperform small-cap stocks, he also predicted.

Mr. Doll is also predicting the U.S. Treasury curve will steepen. With short-term rates at almost zero, Mr. Doll believes the yield on the 10- and 30-year Treasury securities will end the year higher. Reasons for increase in the long end of the curve include a better growth outlook for the world economy, receding financial risks, lessening risk of deflation and continued easing by monetary authorities.

As spreads to Treasuries are fairly modest already, Mr. Doll did not make any formal predictions, but thought spreads to Treasuries might tighten modestly in 2013.

In terms of the U.S. economy Mr. Doll said there are “rays of sunshine, but still lots of clouds.”

Mr. Doll expects the European economy to be less bad in 2013. He predicts that by the end of the year Europe will begin to emerge from its recession and that fourth-quarter 2013 economic growth will be -0.2%.

Mr. Doll said risks to his 2013 predictions coming true include legislators worldwide playing politics, a weaker recovery in emerging markets economies, a re-eruption of the crisis in Europe, a significant geopolitical event such as turmoil in the Middle East and significant inflation or deflation.

In commenting on politics, Mr. Doll said, “Washington casts a huge shadow on everything.”

For 2012, Mr. Doll had a 60% batting average with his predictions. The one he got the most wrong was a forecast the Republicans would win the White House and Congress. Mr. Doll has a long-term batting average of around 70% to 75% on his annual predictions.

Specifically, Mr. Doll's 10 predictions for 2013 are:

  • The U.S. economy continues to muddle through with nominal growth below 5% for the seventh year in a row.
  • Europe begins to exit its recession by the end of year as the European Central Bank eases monetary policy and financial stresses lessen.
  • The U.S. yield curve steepens as financial risks recede and deflationary threats lessen.
  • U.S. stocks record a new all-time high as stocks advance for the fifth year in a row.
  • Emerging market equities outperform developed market equities.
  • After two years of underperformance, U.S. multinationals outperform domestically focused companies.
  • Large-cap stocks outperform small-cap stocks, and cyclical companies outperform defensive companies.
  • Dividends increase at a double-digit rate as payout ratios rise.
  • A nascent U.S. manufacturing renaissance continues, powered by cheap natural gas.
  • The U.S. government passes a $2 trillion to $3 trillion 10-year budget deal.