A Review of the Financial Markets in 2014 —Grading Bob Doll’s “Ten Predictions”

| December 2, 2014

bob-doll-headshotIn January of each year, Bob Doll, the Chief Equity Strategist at Nuveen Asset Management (and the Keynote Speaker for the 2015 CPN Conference) makes his “Ten Predictions” for the coming year.  With the year coming to a close, we can look back at 2014 Financial Performance through the lens of Mr. Doll’s predictions:

1. The U.S. economy grows 3% as housing starts surpass one million and private employment hits an all-time high.

MOSTLY RIGHT:  Housing starts will exceed one million and private employment hit an all time high in May.  It looks as though the U.S. economy will close the year short of 3% growth. There was better than 4% combined growth in the second and third quarters; and this predication would have almost certainly been correct if not for the terrible winter weather that depressed the economy in the first quarter of the year.

2.  10-year Treasury yields move toward 3.5% as the Fed completes tapering and holds short-term rate near zero.

PARTLY RIGHT: The Federal Reserve Board has held short-term interest rates near zero, and it did end tapering (its program of buying $15 million in bonds each month).  This decision came late in 2014, and it will take some time before its impact is felt on rising interest rates.  The 10 Year Treasury yield was at 2.74% a year ago, and is now at 2.33%.

3.  U.S. equities record another good year despite enduring a 10% correction.

ALMOST PERFECT BULLS EYE: The S&P 500 closed 2013 at 1848.  It rose steadily through the year to a mid-September high of 2010, and then fell to 1862 by mid-October – a 7.4% correction.  It then climbed again to reach a new high of 2062.  As of this writing, the S+P 500 is up 12% for the year.

4.  Cyclical stocks outperform defensive stocks.

PROBABLY NOT: Cyclical stocks are those that grow with the economy; while defensive stocks are those that remain steady (like utilities).  From January through October of 2014, the Russell Global Dynamic Index (a good measure for cyclical stocks) was up 10.06% for the year; while the Russell Global Defensive Index was up 11.12%.  It will take a huge end of year push for cyclical stocks to outperform defensive stocks in 2014.

5. Dividends, stock buy-backs, capex and M&A all increase at a double-digit rate

CORRECT: In Mr. Doll’s own words: “Dividend payments and stock buy-backs have already increased by a double-digit rate and mergers and acquisitions have been on a tear, with Thomson Reuters data showing M&A activity totaling $2.7 trillion so far this year, a 60% year-over-year increase.”

6. The U.S. dollar appreciates as U.S. energy and manufacturing trends continue to improve.

CORRECT: US Dollar Index has risen from 80.0 on January 1 to 87.3 at the end of November, 2014.  U.S. manufacturing has continued to improve and the growth in the U.S. energy business has been perhaps the biggest financial story of the year.

7.  Gold falls for the second year and commodity prices languish.

CORRECT: Commodity prices have certainly languished, mostly due to the decline in the cost of a barrel of oil.  The Thomson Reuters/Core Commodity CRB Index opened the year at 277 and closed November at 266.  Gold opened the year at $1,202/oz, climbed rapidly and then fell even faster to end November at $1,191/oz; and likely will end 2014 even lower.

8. Municipal bonds, led by high yield, outperform taxable bond counterparts.

CORRECT: Municipal bonds have been the “market darling” for 2014 (in Mr. Doll’s words) and “are comfortably ahead of the taxable bonds” for performance in 2014.

9.  Active managers outperform index funds

LOOKS TO BE INCORRECT: Actively managed funds continued their losing streak against funds tied to a particular index.  In 2013, 40% of large-cap funds with active managers did better than the Russell 1000 Index.  For the first half of 2014, that was down to only 19% .

10.  Republicans increase their lead in the House but fall short of capturing the Senate.

HALF-CORRECT:  Republicans did increase their lead in House of Representatives by 12 seats, but also scored a resounding victory in picking up 8 (or maybe 9) seats to take control of the Senate.

More information of Bob Doll’s Ten Predictions, and his own comments on their accuracy, are available at here.

The Christian Professional Network will welcome Mr. Doll to its 2015 Conference as the Keynote Speaker on October 28, 2015.

Category: Finances