What the Market Gurus See for 2013
What will the year ahead bring? The world of investing has no shortage of seers willing to hazard an educated guess. We gathered the top ten predictions for the year ahead from two market pundits, plus Morgan Stanley's Global Investment Committee.
Bob Doll: The economy muddles through, and stocks grind higher
This year will be a good year for stocks, but it may not feel like a good year, says Bob Doll, chief equity strategist for Nuveen Asset Management. "We will not see a recession," Doll says. "On the other hand, we are not going to see acceleration." Doll expects U.S. stocks to hit a record high in 2013. Standard & Poor's 500-stock index hit its all-time high of 1565 in October 2007. Returning to that level would require a 7% jump from the index's current value of 1461 (all current prices are as of the January 9 close).
See Also: Our 2013 Investing Forecast
But the economy will continue its weak trudge. Doll predicts that 2013 will be the fifth year of sluggish growth for the U.S. He's calling for nominal growth in gross domestic product -- meaning real GDP growth plus the rate of inflation -- of less than 5%. "I don't think this is necessarily a breakout year," Doll says, in part because U.S. business leaders still lack confidence and aren't making large investments.
He thinks U.S. manufacturing will be a bright spot and will grow at a faster pace than the overall economy in 2013. That will be driven in part by cheap natural gas, Doll says. He notes that gas was recently priced at $3 per million British thermal units (MMBtu) in the U.S., compared with $10 per MMBtu in Germany and $13 per MMBtu in Japan. He says rising wages in emerging nations are aiding the relative competitiveness of U.S. manufacturers as well.
As for specific investment recommendations, Doll believes shares of large U.S. companies will beat those of small companies because small-company stocks tend to surge ahead when economic growth is accelerating and large-company stocks tend to shine when growth slows (which he believes will happen in 2013). He thinks companies that sell goods to emerging-markets nations will be a strong spot this year compared with businesses that sell only or primarily within the U.S., and he thinks shares of companies domiciled in emerging-markets nations will beat developed-markets shares. Although Doll says Europe will continue to heal gradually -- with an improving economy in 2013 and an end to its recession in 2014 -- it's too soon to back up the truck for European stocks.
Dividends will be another bright spot. Doll says dividend payouts will increase by 10% or more in the U.S., as corporations decide to distribute a greater portion of their earnings. Doll says that about 50% of S&P 500 stocks currently yield more than the 1.9% yield of ten-year Treasury bonds. Over the long term, that figure has been closer to 10% of companies, he says. The outlook for bonds, however, is not so rosy, as Doll predicts that long-term interest rates will rise in the year ahead.
Finally, Doll sees lawmakers reaching a deal to cut U.S. government debt by $2 trillion to $3 trillion over the next ten years.
Doll issues a list of ten predictions at the start of every new year. He says he's historically had about a 70% to 75% accuracy rate with his predictions. For 2012, he was correct in predicting that the European debt crisis would ease and that U.S. stocks would rise by 10% or more. He was wrong, however, in forecasting that Republicans would take control of the Senate and the White House in the 2012 elections. (You can read the full list of his 2013 predictions here).
Byron Wien: A weak year for U.S. stocks, while Asian shares surge
Like Doll, Wien is known for his annual list of predictions. But Wien chooses to focus on what he thinks will be the top surprises of the year. He defines a surprise as an event that the average investor believes is relatively unlikely but that he believes has a more than 50% chance of happening.