Why a Recession Might Still Be in Store for the US Economy, According to Bob Doll
Bob Doll, the Chief Investment Officer at Crossmark Global Investments and a former Chief US Equity Strategist at BlackRock, is sticking with his call for a recession in the US economy. Despite the recent optimism among market observers and the rally in the S&P 500, Doll believes investors need to be more patient and consider leading indicators that suggest a downturn could be on the horizon.
According to Doll, indicators such as the yield curve, The Conference Board’s Leading Economic Index (LEI), and money growth paint a more accurate picture of the economy’s health than lagging or coincident indicators like unemployment rates and job gains. The yield curve has inverted, meaning that shorter-duration yields have risen alongside the fed funds rate while investors seek safety in the 10-year note. This inversion has preceded every recession since the 1960s and suggests a downturn could be imminent.
The Conference Board’s LEI, which compiles various components including manufacturing activity, consumer sentiment, and stock market performance, has also been in recession territory for months. Doll sees this as a strong signal that a recession is still a possibility. Additionally, negative year-over-year growth in the money supply, caused by the Federal Reserve allowing assets to roll off its balance sheet, indicates shrinking liquidity in the economy, which can slow it down.
Doll also highlights the policy lags in rate hikes, suggesting that the consequences of the Federal Reserve’s actions may not be fully realized yet. The Fed raised rates from 0% to 5.25% in just over a year, and Doll believes this will have lasting effects on the economy.
While Doll expects a downturn, he believes it will be relatively mild due to the monetary and fiscal stimuli implemented over the past few years. He predicts that the S&P 500 could fall to a range between 3,800 and 4,200, representing a 14.8% downside from current levels.
Other Wall Street strategists, including David Rosenberg of Rosenberg Research and Michael Kantrowitz of Piper Sandler, share Doll’s view that a recession is on the horizon. Firms such as Wells Fargo and Deutsche Bank also believe that a downturn is still to come.
Despite these predictions, the current strength of the labor market is giving bulls hope, with the unemployment rate falling and job growth continuing. The resilience of the labor market will be a key factor to watch in the coming months if the stock market is to sustain its rally.
Ultimately, whether Doll’s recession call comes to fruition remains uncertain. However, it serves as a reminder for investors not to become complacent and to consider a range of indicators instead of relying solely on positive employment figures.
Analyst comment
Overall, the news can be seen as negative as it suggests the possibility of a recession in the US economy. According to Bob Doll, leading indicators such as the yield curve, The Conference Board’s Leading Economic Index, and money growth point towards a potential downturn. However, Doll also believes that the recession will be relatively mild due to past monetary and fiscal stimuli. The market may experience a decline of around 14.8% according to Doll’s predictions. Other Wall Street strategists and firms also share Doll’s view. The strength of the labor market will be crucial in determining the market’s sustainability. Analysts should not become complacent and should consider a range of indicators beyond employment figures.