By Jeff Benjamin, Investment News

Bob Doll’s annual list of predictions has a strong focus on inflation and the government’s ability to manage it, rather than just continuing to call it “transitory.”

The chief investment officer at Crossmark Global Investments lays this year’s predictions against the backdrop of a 2022 that he described as a “tug of war between earnings tailwinds and valuation headwinds.”

Even as he characterizes last year’s financial markets as “hostile” for investors, Doll is dishing out his classic positive take on some of the gloomier scenarios.

The S&P 500 Index, still in bear market territory, lost more than 19% last year. And the rarity of both stocks and bonds dropping at the same time saw the traditional 60/40 portfolio model decline by more than 14% for its worst year since 2008.

The year ahead includes wrinkles galore, including the war in Ukraine and the stubborn persistence of Covid.

“The key economic question for 2023 is whether central banks will be able to bring down inflation to acceptable levels without a recession,” Dole wrote in his 2023 outlook. Beyond that, he’s watching “potential political and economic shocks” that could impact the global economy.

Here are his predictions:

1. The U.S. experiences a shallow recession as G.D.P. is in the bottom 10 of the last 50 years.

In typical Doll fashion, this prediction gets the ball rolling with a low-risk bet on the obvious. Most economists, if they’re being honest, won’t be able to conjure up a scenario in which the U.S. economy avoids recession.

2. Inflation falls substantially but remains above the Fed’s target rate.

The good news is that inflation has already started dropping from a 40-year high level of around 9%. But, even though some politicians might want you to believe otherwise, it’s important to understand that falling inflation doesn’t necessarily mean falling prices. It just means prices might start rising at a slower rate.

The Fed’s target inflation rate is 2%.

3. Fed funds rate reaches 5% and remains there for the balance of the year.

This suggests a little more tightening by the Fed, which hiked rates seven times in 2022 for a current overnight rate of between 4.25% and 4.5%.

4. Earnings fall short of expectations in 2023 due to cost pressures of revenue shortfalls.

Think of this as a byproduct of that shallow recession from prediction No. 1.

5. No major asset class is up or down by a double-digit percentage for only the fourth time this century.

Sounds like a relatively smooth ride. After the wild volatility of 2022, we’ll take it.

6. Energy, consumer staples, and financials outperform utilities, technology, and communication services as value beats growth.

This one seems like an obvious continuation of what we saw at the end of 2022, but be careful, because value investing has a long history of head fakes and heart breaks.

7. The average active equity manager beats the index in 2023.

Another fun one to ponder and hope for but it might take some hot performers to push up the average.

8. International stocks outperform U.S. stocks for the second year in a row, and for the first time since 2006-2007.

Hopefully we all remember what the U.S. financial system looked like after 2007, and hopefully that isn’t repeated in 2024.

9. India surpasses China as the world’s largest population and is the fastest growing large economy.

With 1.4 billion people, China is home to 17.7% of the world’s population. India trails by about 37 million people, which is less than the population of California.

10. A double-digit number of candidates announce for president.

Sadly, this year kicks off another big wave of the ever-rolling election cycle, and it seems an odds-on bet that both major political parties will be digging deep into the sofa cushions for viable candidates.

Happy New Year.

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Lawton Retirement Plan Consultants, LLC (LRPC) is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to employer retirement plan sponsors. The firm specializes in sustainable investment strategies for retirement plans that incorporate Socially Responsible Investment (SRI) factors and Environmental, Social and Governance (ESG) elements. LRPC currently has contracts in place to provide consulting services on more than a half billion dollars in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or bob@lawtonrpc.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.

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