Wall Street's bull market should keep on running, but it could slow its pace as now buoyant profit growth diminishes, says Nuveen Asset Management's Bob Doll.
The S&P 500, as of Wednesday, is now in the longest-running bull market ever, as some strategists measure it. That would be one day older than the 1990-to-2000 bull run, which ended with the bursting of the tech bubble in 2000.
On Tuesday, the S&P 500 finally regained the high of 2,872 it first reached in January, and it is now up 7 percent for the year. It traded at 2,873 briefly before backing down. On Wednesday, the S&P was off slightly.
"That we're at 2,872 can be attributed to these phenomenal earnings. You can get through higher interest rates and the trade issues. When earnings are up 25 percent, that takes the market higher," said Doll, chief equity strategist and senior portfolio manager at Nuveen Asset Management. "The earnings are going to be pretty good. The signs of recession, which is usually the death knell for a bull market, are nowhere to be found."
But Doll said the market will continue to make gains as long as inflation remains in check and the economy does not stumble. "The next 12 months will not be as great as the bull market to date," said Doll, adding it should be higher though less than the roughly 15 percent gains per year. "In the next 12 months, we're likely to have good but not great earnings. It'll be decelerating."
Market pros have a checklist of what could kill the bull market, which started on March 9, 2009. At the top of the list are concerns the Fed will be too aggressive with its rate hiking, especially if the economy should slow down its pace and earnings growth slows. But Doll does not foresee the Fed as a problem.
"If profit margins are under pressure, that's a problem," he said. "If they keep going at the pace they're going at, you and I won't be upset, the president will be. He will make noise. The rates are still low rates and are still being normalized."
Doll also did not see any lingering effects from Tuesday's reports that two former Trump advisors were guilty of tax and bank fraud. Former Trump lawyer Michael Cohen said, in pleading guilty, that Trump directed him to pay off a porn star in an effort to influence the outcome of the election.
The economy may be doing well and is expected to grow above 3 percent for the remainder of the year, but there are concerns a recession is lurking. That's because the yield curve is flattening and could ultimately invert, a recession warning sign. Doll said there are no worries yet. The 10-year yield is just 22 points above the 2-year yield. If it falls below it, that would be considered a recession signal.
"A flattening yield curve is great news for the stock market," said Doll. "The average lead time from when the curve inverts until the bull market peaks is about nine months."
Doll said the market's concerns about trade wars have diminished somewhat with signs of progress with Europe and Mexico, but the differences with China will take a long time to work out. "We still have China to wrestle to the ground. I don't think they will be solved any time soon. I think there will be more skirmishes in that one, as they threaten us and we threaten them back," he said. "I don't think there's going to be anything notable with China until after the election."
Doll said it would have been hard to believe when the bull market started that it would be in its ninth year, unemployment would be less than 4 percent and inflation would be under 2 percent. "That's why it's a phenomenal bull market. We enjoy it while we've got it."