While the stock market is unlikely to repeat the "near perfect" showing it had in 2017, advisers can take solace in a positive outlook for 2018 and the likelihood that a bear market is unlikely to emerge in the near term, Bob Doll, chief equity strategist at Nuveen Asset Management, said Monday.
Despite that relative good news, advisers will likely struggle to find double-digit returns for their clients in the current market environment, Mr. Doll said during a keynote address at InvestmentNews' 12th annual Retirement Income Summit in Chicago.
That may be unwelcome news for some advisers coming off of last year, as some observers have described 2017's stock market as the "first perfect year ever," Mr. Doll told the audience of about 350 advisers and other financial professionals at the two-day event. After all, the S&P 500 index, a widely cited market barometer, had positive growth in each month of 2017 — which had never happened previously — and also returned a stellar 21%.
This year appears to be tapering off as stocks already have seen a few down months, Mr. Doll said. While interest rates were "very low and benign" last year, supporting a strong market, this year they're still low but rising, which is "not horrible, but less than perfect," he said.
Despite that, there's room for optimism. Mr. Doll doesn't expect a negative market in 2018, but rather one that returns in the single digits, perhaps 7%, he said.
By contrast, most fixed-income assets are likely to have "a minus sign in front," in the range of roughly -3% or -4% this year, making stocks the "asset of choice," he said.
"If I'm looking for double digits, I think we'll struggle to find it," Mr. Doll said. "It's a less-than-perfect world, but it's still pretty good."
Mr. Doll also believes it's premature to talk about another recession; he still sees room to run and believes a bear market won't happen over the next two years.
"The economic backdrop is still quite good," he said, explaining that the U.S. economy is "humming on most cylinders" and investors are enjoying global growth that's "reasonably synchronous."
Mr. Doll indicated that the outlook for company earnings remains solid, and inflation and interest rates remain contained.
Additionally, relatively low wage growth is flashing positive market signals. Historically, recessions have hit when wage growth approaches 4%, but the U.S. is currently far off that mark, around 2.7%, he said.
Bond yields are also currently rising, and stock prices have historically risen concurrent with bond yields. While the yield curve on 10-year treasuries is flattening — meaning short and long term yields are coming closer together — a flattening of the yield curve isn't dangerous for the stock market; the real danger is an inversion of the curve, which would see shorter-term yields push higher than longer-term ones, he said.
High market valuations also should not deter investors because market valuations are statistically not correlated to one-year market returns, according to Mr. Doll. However, looking out over a longer time horizon, returns are probably going to be lower than normal over the next decade, he said.
One potential market headwind: tariffs.
"There are negotiations going on," Mr. Doll said of ongoing discussions between the U.S. and China over trade. "We'll see how they come out. If we fail, and we do have tariffs back and forth, that's not good."