Doll Forecasts A ‘Shallow’ Recession in 2023

Market guru Bob Doll of Crossmark believes a mild recession is imminent due to the Fed’s continued monetary tightening to try and tame inflation.


Crossmark Global Investments CIO Bob Doll has weighed in with his 10 market predictions for 2023, including a “shallow recession” spurred in large part by the Federal Reserve’s quest to tame inflation.

In his annual predictions, Doll said the main focal points for 2023 will be the Fed’s monetary tightening policy, along with corporate earnings. He predicts economic weakness will come in part from the delayed impact of the Fed raising rates in a relatively short period of time last year, along with the likelihood of further hikes to 5% or more for the balance of 2023.

“We acknowledge that the Fed could blink and acquiesce to a 3-4% inflation ‘for the time being,’ in which a soft landing might be possible,” Doll wrote. “But if the Fed insists on their 2% target, a recession is almost inevitable.”

Doll does see inflation declining “substantially,” but not to the 2% target being sought by the Fed over the long run. Despite the likely impact of higher interest rates, he sees the recession as mild due to “the cash on corporate balance sheets, a reasonably healthy corporate sector, and a relatively stronger banking system.”

In 2022, everyday 401(k) and 403(b) savers saw portfolio declines of 21% or more, according to some measures, as both stocks and bonds had negative returns for the first three quarters. Meanwhile, retirement plan withdrawals have hit their highest level since 2004, as workers seek to manage rising costs, Vanguard said in November.

Doll predicts the “lows of last October” for stocks to return this year due to economic growth fears, talk of recession and negative earnings revisions. Bonds, however, will rally during this period, he said, with the potential for a reversal later in the year as prospects pick up for 2024.

He believes corporate earnings will be revised downward as revenue growth slows and operating leverage puts pressure on profit margins.

Doll also weighed in on international trends, as well as politics, including a prediction of a double-digit field of U.S. presidential candidates as the Biden administration moves into its third year.

Doll’s full list of 10 predictions are:

  • The U.S. experiences a shallow recession, as real GDP will be among the lowest 10 of the last 50 years.

  • Inflation falls substantially, but remains above the Fed’s target of 2%.

  • The Federal Funds Rate reaches 5% and remains there for the balance of the year.

  • Earnings fall short of expectation in 2023 due to cost pressures and revenue shortfalls.

  • No major asset class is up or down by a double-digit percentage for only the fourth time this century.

  • Energy, consumer staple and financial sectors outperform utilities, technology and communication services as value beats growth.

  • The average active equity manager beats the index in 2023.

  • International stocks outperform U.S. ones for the second year in a row (first time since 2006 and 2007).

  • India surpasses China as the world’s largest population and is the fastest growing large economy.

  • A double-digit number of candidates announce they will run for U.S. president.
Last month, Doll gave himself a 7.5 out of 10 on his investment predictions for 2022. He said that was roughly in line with his long-term average of 7.0 to 7.5 out of 10.

«