Bull Market Not Out of the Woods From Trade Woes, Bob Doll Warns

(Bloomberg) -- Even for staunch long-term believers in the bull market in stocks that’s run for nine years, this month’s escalation in trade tensions between the U.S. and China is spurring some caution.

"We may not be out of the woods with the current correction,” said Bob Doll, chief equity strategist and portfolio manager at Nuveen Asset Management, which oversees about $970 billion. “Until more clarity emerges, we are approaching equity markets cautiously," he says, while remaining positive on stocks longer term.

He’s not alone in puzzling over the end-game on arguments over market access between the world’s top two economies. Volatility has spiked in stocks this month as investors swing between fear of a spiraling in tensions that hurts global trade, growth and earnings, and optimism that policy makers will take things back from the brink.

The second-longest bull market in history had already seen valuations being tested by rising interest rates before U.S. President Donald Trump’s tariff-raising plans added to the mix this month. The MSCI All Country World Index has seen six days with moves greater than 1 percent this month, compared with just three during the entirety of 2017.

“We would not be surprised to see relatively high levels of volatility continue," Doll wrote in a weekly note.

Strategists at Barclays Plc say it’s best to make a tactical switch out of some equity positions, into fixed income until more clarity emerges. Indeed, that behavior was in evidence Tuesday after a report about plans to tighten the U.S. crackdown on Chinese investment spurred a fresh bout of stock dumping.

Others have recommended trades from going long Australia’s dollar to buying Japan’s yen as ways to profit from any restrictions in trade between the U.S. and China.

While there’s no reason yet to remove a tilt in favor of stocks, concerns are rising, says Richard Lacaille, global chief investment officer at State Street Global Advisors.

“Markets are still optimistic, many people are still overweight and we’re overweight in risk assets,” Lacaille told Bloomberg TV. “But we’re pretty worried about that left-tail risk. At the moment that is not priced in with any degree of certainty.” His firm controls $2.8 trillion in fund assets.

Joseph Oughourlian, founder and managing partner of London-based hedge fund Amber Capital, says White House officials themselves don’t know where they are going, let alone market players. That doesn’t leave much wiggle room for valuations, given how far stocks have come over the years, he says.

“Investors are left very nervous with the feeling that there isn’t much of a leadership and there are some random decisions that are taken on a daily basis,” he said. ‘That’s quite worrisome.”

To contact the reporter on this story: Adam Haigh in Sydney at ahaigh1@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Ravil Shirodkar

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