Bob Doll, the CIO of Crossmark Global Investments, said 7.5 of his 10 investment predictions for 2022 came true in giving the results of his annual forecasting.
Doll’s grade matched Crossmark’s long-term average of 7.0-7.5 in more than 30 years of tracking, he wrote last week. The results came amid what Doll called a “year for the history books,” with stocks and bonds both declining for each of the first three quarters for the first time in 50 years.
“The rise in interest rates and compression in equity valuations stemmed from the worst inflation in 40 years, even as earnings estimates improved for the first six months of the year,” Doll wrote. “Volatility was high for both stocks and bonds, adding to the consternation.”
1/2 Right, 1/2 Wrong
The 2.5 predictions Doll said he got wrong included:
- 1/2 correct: Doll said U.S. real growth and inflation would remain above-trend, but decline from 2021 levels. Real GDP did decline from 2021 levels, he wrote, but was not above trend. Inflation was above trend, but did not decline. This mix of too little real growth and too much inflation “was problematic,” Doll wrote.
- 1/2 correct: Doll said inflation would fall, but core inflation would remain stuck at around 3%. He said in the note that core inflation has risen and is stuck, but though inflation has fallen over the last several months, it is not yet below 2021 year-end levels. The Bureau of Economic Analysis’ Personal Consumption Expenditures’ report released on Friday showed that core inflation was running at 4.7% over the last 12 months.
- 1/2 correct: Doll predicted that cyclical, value and small stocks would outperform defensive, growth and large stocks. Cyclicals ended up getting clobbered by defensives, he wrote, while value trounced growth and small versus big remained close. Economic weakness and recession concerns caused defensives to beat cyclicals, while rising interest rates, among other things, allowed value to beat growth, he said. Small stocks, meanwhile, remained cheap versus big ones.
- Incorrect: Finally, Doll said Republicans would gain at least 20-25 seats in the House and barely win the Senate. Instead, the trend of the incumbent party losing big in the midterms did not come to pass.
On the other side of the ledger, Doll accurately predicted that:
- 10-year Treasuries provided a second year of negative returns for the first time since 1958 and 1959;
- Stocks saw their first 10% correction since the pandemic and failed to make gains;
- Financial and energy stocks outperformed utilities and communication services;
- International stocks outperformed U.S. ones for only the second year in the last decade;
- Values-based investing continued to gain share; and
- After hitting more than a 60-year low in 2021, federal interest expense as a percentage of revenue began a long-term move higher.
Doll will be chiming in with his 2023 outlook on December 30, he said in the note. The big question he’ll be addressing is whether the U.S. experiences a recession, but either way, Doll says, “earnings estimates are too high, which probably puts a lid on significant upside to equities.”