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Bob Doll: Stocks May Notch Double-Digit Percentage Gains This Year

By Dan Weil   |   Thursday, 09 Jan 2014 07:29 AM

Stocks are likely to continue their rally in 2014, though not at the torrid pace of last year, and they should see a correction along the way, says Bob Doll, chief equity strategist at Nuveen Asset Management.

In his forecast for this year, obtained by CNBC, Doll predicts that cyclical stocks will outperform defensive issues and that the market's gains will result more from earnings growth than multiple expansion.

"While expectations of high single-digit or low double-digit percentage gains are not unreasonable, we also think a noticeable pullback some time during the year is likely to be caused by overbought and deteriorating technical conditions," he writes.

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"We would use pullbacks as buying opportunities as most fundamentals continue to improve."

Companies will boost their performance with double-digit percentage increases in dividends, stock buybacks and capital expenditures, Doll explains. He also sees merger activity increasing.

"Dividends and buybacks have been increasing in recent years, but we expect the largesse to spread to businesses reinvestment (capital expenditure) and buying the company 'down the street.' Pent-up demand and aging of plant, equipment and technology argue for increases in those key areas," Doll notes.

He sees little hope for gold this year. The precious metal plunged 28 percent in 2013, its biggest drop in 32 years.

"In our opinion, the mystery is not that gold finally came down — the mystery is that it took so long," Doll states. "The preoccupation with gold was originally related to a concern about the viability of the financial system and the concern about inflation, with so much money being 'thrown' at this system."

But now gold is stymied by rising global growth, diminishing threats to the financial system, rising real interest rates and a likely increase by the dollar, he suggests.

He doesn't view global growth as strong enough to boost commodities in general, especially given their abundant supply. That dynamic "likely argues for trendless, but volatile (as usual) commodity prices," Doll says.

He predicts the U.S. economy will grow 3 percent this year and that the 10-year Treasury note will peak at 3.5 percent, up from 2.99 percent Tuesday. The Fed will leave the federal funds target rate at zero to 0.25 percent this year, Doll forecasts.

Another investment luminary who sees stocks rising this year is Abby Joseph Cohen, senior investment strategist for Goldman Sachs.

"I look at the fundamentals," she tells The New York Times. "Even after such a strong year in 2013, I think it will continue."

She's impressed with economic growth, job creation, labor productivity, falling energy prices and mild inflation. GDP expanded 4.1 percent in the third quarter, and the economy generated 203,000 jobs in November.

"This will provide staying power," Cohen notes.

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