Doll Scores 50/50 on 2023 Predictions

Bob Doll, the CIO of Crossmark Global Investments, said five of his 10 annual investment predictions for 2023 came true amid what he called a challenging year for investors.

Doll said his predictions for 2023 produced one of his “worst years,” below his average of 7.0 to 7.5 over 30 years of predictions.

“Multiple expansion despite flattish earnings confounded most investors even as a much-anticipated recession did not materialize,” Doll wrote. “Investors enjoyed falling long-term interest rates in the back part of the year, even as the Fed raised rates multiple times reaching the 5 1/4% level.”

Half Wrong

The predictions Doll got wrong included:

• Incorrect: Doll predicted a shallow recession in 2023, which ultimately did not occur. Stronger-than-expected consumer sentiment, driven by a robust, yet weakening labor market and leftover cash resources from the COVID-19 pandemic period allowed for sustained economic growth, according to Doll’s report. Yet cautionary signals from lead indicators of recession, such as the yield curve and money supply, persisted through the end of the year.
• Incorrect: Doll said a major asset class would not change up or down by a double-digit percentage. In reality, stocks catapulted higher than that marker. The surge was led by the “Magnificent 7” stocks from Apple, Microsoft, Google, Amazon, Nvidia, Meta and Tesla, he noted.
• Incorrect: Doll guessed that energy, consumer staples and financials would outperform utilities, technology and communication services, on the premise that value beats growth. But the prediction, he noted, was “way off the mark.” Instead, growth beat value, with technology and communication the year’s best-performing two sectors. Meanwhile, energy and consumer staples were down for the full year.
• Incorrect: Doll’s expectation that the average active equity manager would outperform the index in 2023 was incorrect. The dominance of the “Magnificent 7,” coupled with underperformance by average stocks and a shift toward more equally weighted portfolios by active managers, disproved this prediction early in the year.
• Incorrect: Doll’s projection that international stocks would outperform those from the U.S. for the second year in a row fell short due to the notable outperformance of mega-cap growth stocks in the U.S., coupled with a dollar rally and economic challenges in various parts of the globe.

Half Right

Doll did get 50% of his predictions correct, which, though lower than his usual average, showed some strong prescience in areas where others got it wrong. Those included:

• Inflation fell substantially, in part due to stronger interest rates, but remained above the Federal Reserve’s target of 2%;
• The federal funds rate reached 5% and remained there for the balance of the year;
• Earnings fell short of expectations due to cost pressures and revenue shortfalls;
• India surpassed China as the world’s largest population and is the fastest-growing large economy; and
• A double-digit number of candidates announced they would run for U.S. president.

Doll will release his 2024 outlook on December 29, he wrote. One big question is whether the consensus view of the double-digit earnings growth, no recession and Fed rate cuts commencing early in the new year can all come together.

“We are dubious that all these good things can happen simultaneously,” Doll wrote.