"That's part of the Trump rally. The markets assume we elected pro-growth Donald Trump. He was the guy who was going to cut taxes and roll back regulation, but he also talked about tariffs and tearing up trade deals — things that are anti-growth. Where did that president-elect go?" he said. "Part of the market going up is Donald Trump is not doing scorched earth on all kinds of stuff which he kind of implied he would while he was campaigning."
Doll said some of the negative side of Trump could emerge, and that would cause a selloff in stocks and buying in bonds.
"I'm not convinced it's a one-way street. We'll get some of those days. Under the surface, the trend has changed. Whatever you thought about stocks before the election, you have to like them a little more, and whatever you think about bonds, you have to like them a little less," he said.
Doll notes that the economy was already improving before the election, and rates were already moving higher. But the fact that Trump is trying to spur growth has made stocks more appealing, even in a rising interest rate environment.
"We don't know what policies are going to pass or how long it will take to enact them, or how good they will be," he said. Trump's tax overhaul would be the first big tax cut package since the Reagan era, Doll said.
Stocks should continue to gain, and the bull market could be extended particularly if there is higher growth.
"We're probably heading into a period where bonds go down and stocks are up — not tons, because the P/E rate is not going to go up if interest rates are going up," he said.
As for the market's performance next year, "the default would be we're up some more and that's my best guess, but I don't know if it's a lot or a little. There is more uncertainty ... If he shuts the borders because the anti-trade Trump comes out, we'll have a recession and the market will go down. If that side stays quiet and he cuts taxes, it could be up a lot," he said.
The S&P 500 is about 3 percent higher since the election, and all major indices have hit new highs. The 10-year Treasury yield has risen as high as 2.40 from 1.80 percent.