- Crossmark’s Bob Doll told Insider last week that investors shouldn’t rely on a pivot from the Fed just yet.
- Doll said the S&P 500 would likely retest recent lows around 3,500-3,600.
- In a low yield environment for the broader market, he shared what he is looking for in stocks.
Investors who had been optimistic about a Federal Reserve pivot to dovish policy were again disappointed last Wednesday when central bank chairman Jerome Powell dispelled any doubts that their hawkish policies would end soon.
“What I’m trying to do is make sure our message is clear, which is that we think we have a long way to go, we have ground to cover with the rates of interest rate before we hit that level of interest rates that we think is restrictive,” Powell said at a news conference following the November meeting of the Federal Open Market Committee last week, during which they raised the benchmark lending rate by 75 basis points for the fourth consecutive time.
Shares fell rapidly on Wednesday afternoon after the rise was announced and as Powell reiterated the FOMC’s hawkish intentions. The S&P 500 closed down 2.5% on the day, falling 3.3% in the past hour and a half of trading.
Earlier in the morning, Bob Doll, CIO at Crossmark Global Investments and former chief US equity strategist at BlackRock, said he expected the October rally – which had gained as much as 9% – ends, as have other recent market returns. This is because he expects the Fed to stay on its tight path.
“We’ve had a nice little run here in the stock market — this is the third double-digit percentage gain since the bear market started,” Doll said. “Like the first two, I guess this one will fade at some point.”
He continued: “There’s a lot of talk about the Fed, it’s almost over, they’re going to give in, it’s going to be the last 75…I think the optimism is a bit premature.”
Doll pointed out that past bear markets only ended when the fed funds rate was above the rate of inflation. Currently, the federal funds rate is between 3.75 and 4%. The September Consumer Price Index showed prices rose 8.2% year over year.
Some think the Fed will be forced to turn to accommodative policy if the US economy goes into recession.
But with the economy still characterized by a tight labor market and not-so-bad-as-expected third-quarter earnings, Doll said the Fed was more likely to hold off on rate hikes for a while.
Doll said he thinks the S&P 500 decline is limited to a range of around 3,500 to 3,600, assuming a bad recession doesn’t happen. The index closed Monday at 3,806.
“I don’t see a lot of downside from here,” Doll said.
Yet he also doesn’t see a ton of upside at the moment and thinks both bears and bulls will be frustrated by a period of continued volatility.
9 stocks Doll is loving right now
With Doll’s outlook being that the broader market is doomed for a limited near-term future, he said his focus is on so-called quality stocks — companies with earnings statements, balance sheets and management teams. quality leadership.
“I don’t think you have to roll the dice and take a lot of portfolio risk,” Doll said. “Good solid companies selling at reasonable prices; or having good cash flow; dividend yield is more important than dividend growth – those are the kinds of things I try to focus on .”
He listed a few energy sector stocks that fit the bill. They understand Exxon Mobil (XOM), Conoco Phillips (COP)and Marathon Petroleum (MPC).
“Supply is reduced, largely by the United States with the potential to be an additional producer, and we have chosen not to produce. So that has created a supply shortfall,” Doll said.
“The typical cycle is oil prices go up, the energy companies make a lot of money, they take the money and put a bunch of holes in the ground and the oil comes out and the price goes down because there’s a oversupply,” he continued. “They’re very disciplined this time around, which is great for financial returns and for investors.”
Doll has also listed some quality stocks in the Health Maintenance Organizations (HMO) space. They include Cigna (CI), Elevance Health (ELV) and McKesson (MCK).
Finally, Doll listed consumer staples and discretionary space stocks, like home improvement retailers Home Depot (HD) and Lowes (LOW), as well as food producer General Mills (GIS).