Bob Doll updates his 10 predictions for 2022

Bob Doll, chief investment officer at faith-based firm Crossmark Global Investments, headed into 2022 forecasting a tougher year for the stock market, with more frequent pullbacks and higher volatility. Undoubtedly, this general prognosis has so far proved accurate.

Doll also made 10 specific predictions for the year and recently released a midyear update, He notes that four of his predictions appear to be going in the right direction, but it’s too early or too close to say how the other six will end up.

Discussing his update and mid-year views in a webcast on Wednesday, Doll also touched on developments over the past few days, saying the recent stock market rally offered signs the bear market could be coming to an end.

“This is the first rally we’ve seen that shows some promise and some possibility that we are preparing for the end of the bear market. I’m not demanding that, but the probabilities are higher now for the first time,” Doll said, noting that four previous rallies in the current bear market took the S&P 500 from 7% to 13%.

The rally started on Friday and Tuesday in particular “was a very strong day. There was real buying, there was real short covering,” he said, citing several reasons for the more promising market outlook.

“We saw [Tuesday] 10-to-1 up-to-down volume, that’s the first day above 90% since the start of this bear market,” Doll said. “We also saw some outperformance of consumer discretionary versus staples. That was unusual in these rallies. We’ve seen defensive stocks lag behind cyclical stocks and that’s another good sign.”

The rally also arose from a significantly oversold market, he noted. It also followed recent fears that the Federal Reserve will hike benchmark interest rates by 100 basis points later this month, while it is now fairly clear that rates will only rise by 75 basis points, he added.

Significantly, consumers’ long-term inflation expectations have fallen recently and ‘earnings are not as bad as feared’.

However, Doll is not convinced that the market has already bottomed and not a series of bottoms, citing several features that would point to the actual bottoming, including increased visibility of Fed tightening, evidence that “the earnings story” will endure, and “classic capitulation” with the VIX index climbing above 40.

“It’s more likely that we’ll have a rising stock market in the second half than in the first half,” he predicted Wednesday, with volatility continuing in both directions.

The 10 slides above highlight Doll’s original predictions for 2022 and his mid-year update, based on data as of June 30th.

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