“We might get one in 2025, but a year ago we said we might get one in 2024,” so either it’s way too early or “it ain’t going to happen. We’ll see,” he said.
The unemployment rate is rising and payroll growth slowing, Doll noted, saying it’s possible that unemployment could hit 4.5% at year-end.
“What the Fed has done, what the economy is doing, what consumers and businesses are doing will tell us” whether the slowdown is real and will lead to a soft perfect landing or a bumpier one, he said.
Possible New Inflation Floor
Doll also had predicted that the 2% to 3% inflation seen in the 2010s will become the 2% to 3% floor for the 2020s.
“Our argument is the 2% Fed (inflation) target is going to be at least elusive. We’re not going to get there. Our longer-term view is inflation’s going to be closer to 3 (%) for this decade, having been closer to 2 the last decade, which is a big difference when you look at valuation for, obviously, stocks and bonds, among other things,” he said.
Weaker Earnings?
Crossmark is also doubtful about expectations for double-digit percentage earnings growth heading into 2025, Doll said, explaining that such increases in the United States typically follow recessions.
When price-to-earnings ratios are over 20, as they are now, “forward, one-, three-, five- and 10-year returns are at best mid-single digits, which is our best guess for the stock market over the next five to 10 years,” the CIO said.
Doll noted that the market has broadened beyond “Magnificent Seven” mega-cap stock leadership, with the group, minus Tesla, basically flat in the third quarter, trailing the S&P 500, which was up 6%.
“So the tenor of the market has certainly changed,” he said.
The Magnificent Seven did account for 44% of the S&P 500′s year-to-date return at Sept. 30, Crossmark noted.
What to Do?
In a market, economy and geopolitical environment with many troubling and reassuring signs, Doll suggested that investors:
- Expect choppy markets, buying on dips and trimming in rallies.
- Focus on earnings growth and free cash flow, not P/E expansion.
- Own some quality fixed income.
- Diversify across asset classes and geographies, including more non-U.S. securities.
- Own high-quality value and less expensive growth.
- Consider an absolute return strategy to complement market exposures.
- Be prepared to step up if there are significant weakness.
Image: Chris Nicholls/ALM; Bloomberg
