- Investors came into 2022 with a much more uncertain outlook than in 2021.
- Interest rates are set to rise and the Fed is dialing down its support.
- Bob Doll shares his best ideas for where to put your money this year.
Around this time last year, there was little bearishness among investors.
Vaccines were coming, the economy was set to re-open, Democrats were gearing up to pass a large fiscal stimulus package after having won the Presidency and both chambers of Congress, and thestill pledged its full support.
JPMorgan strategists called the environment heading into 2021 “market nirvana.”
Now, the story is a little different. Investors came into 2022 with a much more uncertain outlook.
Stocks have risen over 25% in the last 12 months, as zealous investors in a bath ofbid up prices and ballooned valuations.
Inflation has gone to near-40-year highs, to 6.8%. Multiple variants of COVID-19 have eluded vaccines. And the Federal Reserve is racing to dial down its support.
So how will things unfold this year, and where are the best places to put your money? The Crossmark Global Investments CIO and former BlackRock stock chief Bob Doll, who has 30 years of experience in the market, recently addressed these questions in a webinar and note to clients.
Doll’s market predictions — and where to put your money
Doll has a bleaker outlook for 2022 relative to the bull run that’s taken place in 2021. He sees a 10% pullback happening at some point during the year — and told Insider during a phone interview on Thursday that it could already be underway. He said the year would generally be choppier than 2021.
“I envision 2022 as a year of market churning — increasedin both directions, along with confusion, uncertainty, and trendlessness,” Doll said in the note. “Simply stated, I expect the market will experience an earnings tailwind but a valuation headwind.”
He also said that the 10-year Treasury yield would rise to 2% (it has already risen more than 20 basis points this year, to around 1.72%).
Relatedly, as the Fed tightens its monetary policy, he said inflation would fall to around 3%. This would be a significant drop from current levels, but would still be above the 2% goal the Fed had aimed for just a couple of years ago.
With interest rates rising, Doll also said he expects financial and energy stocks to outperform. More generally, he said he expects cyclical, value, and small-cap stocks to perform best.
Within financial stocks, Doll told Insider he likes banks most, and listed three favorites, all of which he includes in the portfolio he manages. They are, in this order, Bank of America (BAC), Wells Fargo (WFC), and JPMorgan (JPM).
“The banks are more leveraged to the tailwinds that we see relative to economic growth, and earnings growth, and the yield curve potentially steepening at some point,” Doll said. “That’s when banks make money.”
“[The refiners] have some benefits from rising energy prices, and they also benefit as the spread widens between the price they pay for raw crude and the price at which they sell the refined products,” he said.
However, Doll also believes international stocks will outperform US stocks amid a weaker dollar. He said that he is generally agnostic on regions and countries, but that if he had to choose an area in particular, it would be Europe.
“It’s most out of favor, it’s the cheapest, it has leverage to economic growth,” he said.
Investors seeking diversified exposure to international stocks might consider a product like the Vanguard Total International Stock Fund (VXUS).
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