When Bob Doll (Chief Investment Officer of Crossmark Global Investments) published his annual list of “Ten Predictions for 2022” in early January, he had little way of knowing that the markets and global economy would soon be facing a “black swan” event in the form of a Russia-Ukraine War. Having said that, he recently reviewed his predictions and we offer an update below.
Here are his top 10 (recently updated) Predictions:
1. In the near term, the Russia-Ukraine War should be investors’ “Number One” worry because of its effect on oil prices.
2. Inflation and rising interest rates remain a major concern. The longer-term concern “has been the rise in inflation and, therefore, the necessary rise in interest rates accompanying that,” Doll said. “That’s been halted a bit because of Russia. But, if that war ended tomorrow morning, investors would go right back to that concern.”
3.“Earnings are always at the forefront” because they tend to move stocks over the long term, Doll noted. How weak the economy gets depends on “how high oil prices go and how long they stay there,” he said. Meanwhile, “valuation levels are not particularly cheap,” he pointed out.
4. If Russia gets away with invading Ukraine, will China step up and see what they can do with Taiwan? “This is important because a large percentage of the world’s semiconductors are made in Taiwan,” Doll said. He estimated the probability to be a “double-digit percentage.”
5. Doll accurately predicted that the Fed would go ahead with a 25 basis-point rate hike at its March meeting. “While Russia-Ukraine has certainly done some tightening without the Fed doing anything, we have to remember interest rates for Fed Funds are zero, appropriate for an emergency that has long since passed.” The possibility of a 50% rate hike, meanwhile, has lessened because of the “tightening done by the war” through oil prices, among other things, he added.
6. Doll entered 2022 predicting the equity market would be a “tug of war between a good earnings tailwind and a modest valuation headwind.” That was a parting with the consensus view, he said, explaining his thinking was stocks would continue to increase with earnings. Doll is sticking with his original forecast that this will be a “modest down year.”
7. The Russia-Ukraine war, in the short-term, “puts a cloud on economic growth so that low-quality, deep cyclical names (with the exception of energy and some commodities) probably are not a place that we’ll see great returns,” according to Doll. “The whole growth-versus-value conversation continues,” he said. “We continue to favor value over growth, so I’d be careful about high P/E growth stocks even though they’ve come down a bunch.”
Meanwhile, energy was one of his favorite sectors entering 2022. But with these stocks up nearly 40%, “you wonder [if they’re] overbought and due for some sort of pullback?” he noted, adding: “That’s another tough call investors have to make.”
8. Now is not the time to take major risks, as nobody knows what will happen. Focus on the long term.
9. Doll made this prediction before the war and it remains on target. Inflation is “probably going to peak at a higher level than we originally thought because of oil prices,” he said. There are, however, “a lot of reasons why inflation should come down some” but still end 2022 at an “unacceptable level” – just “not 6 or 7%.”
10. One prediction may prove wrong: Doll had forecasted international markets would outperform the U.S. But he’s sticking with that forecast for now. “The jury is out on that,” he said. “Certainly, the Russian war creates more headwinds for Europe and Europe is down a bunch. But Japan, the U.K., and emerging markets are all doing better than the U.S.”
Please reach out if you have any questions.