Investors should expect choppy action and more volatility in 2015 — a recipe for rough seas in the stock market — but still end up with annual gains, according to
Bob Doll, chief equity strategist at Nuveen Asset Management.
Doll predicts the global economy should recover in 2015, buoyed higher in part by stronger U.S. growth.
"Falling oil prices hurt oil producers but benefit oil users, and since there are far more users of oil than there are producers, the net effect of lower prices on the global economy should be positive," he wrote in his weekly commentary.
Doll said his expectations for 2015 corporate earnings call for them to grow by approximately 8 percent.
In particular, he singled out job growth as a bright spot in the domestic economic picture, and said it percolated along in 2014 to the highest rate since 1999.
Among the possible downsides he sees at this point are the rising dollar, which could harm exports, and political discord.
Doll noted the U.S. dollar has jumped in value by 10 percent during the last six-months alone, a large move. "The magnitude and pace of the increase could translate into a modest drag on U.S. economic growth, chiefly through lower U.S. exports," he said.
Disagreements between the White House and Congress make legislative accomplishments uncertain in 2015, he explained. "With Republicans now in control of Congress, we expect they will pass more legislation, but President Obama has made it clear he will not hesitate to veto bills with which he disagrees. There is a long list of important issues to be addressed (including energy policy, trade, healthcare, immigration and tax reform), but none of the issues have clear sailing ahead."
Doll expects the Federal Reserve to raise rates mid-year, given the central bank's conviction that deflationary pressures and a tepid global economy will not derail U.S. growth.
"The global economy remains troubled, but we expect it will slowly recover thanks to solid U.S. growth and aggressive policy support," he predicted.
Historical stock trends may be on the side or rising share prices, according to Doll. "Since 1958, when the first five days were positive for equities, markets in January advanced 74% of the time with an average return of 2.2 percent, and full year returns were up 74 percent of the time with an average return of 10.4 percent."
Without putting actual numbers on it, Doll said he expects "global equity prices and bond yields to rise over the next 12 months as the recovery gains traction."
However, Martin Pelletier, a portfolio manager at Trivest Wealth Counsel, wrote in the
Financial Post that the ongoing success of North American financial markets has been masking deeper problems in the global economy.
"The gains by North American markets last year may leave many not realizing that the majority of global equity markets were not very kind to investors. The reason: world GDP growth for a third year in a row failed to accelerate and remained at 3 percent, a full percentage point below the historical average," he explained.
Pelletier noted the S&P 500 was up 13.7 percent in 2014, and Canada's S&P/TSX composite rose 10.5 percent, while the MSCU World Index (ex-U.S.) was off 3.9 percent, the MSCI EAFE lost 4.5 percent and the MSCI Emerging Markets Index fell 1.8 percent.
"We think this gap could expand further unless the ROW [rest of the world] pulls up its socks economically, which could happen this year with expanded monetary stimulus programs and collapsing oil prices," he wrote.
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