Crossmark’s Doll Says Economy Good Enough to Buoy ‘Tired’ Stocks

(Bloomberg) -- The stock market rally may be getting “a little tired” but it has more than enough fuel to continue, says veteran strategist Robert Doll.

The Standard & Poor’s 500 Index is up more than 20% this year and has rallied more than 90% since a plunge near the beginning of the Covid-19 pandemic in March 2020. Some investors are concerned that such a high valuation may not be sustainable, with the delta variant still hindering growth in some businesses. 

A “still good” economy means that stocks will “generally go up,” Doll,  chief investment officer at Crossmark Global Investments Inc., said in an interview on Bloomberg TV’s Surveillance on Monday.   “A good economy means good earnings so the path of least resistance has been and likely will continue to be to the upside.”

Other than the effect of the delta variant, Doll sees reasons for some caution “at the margin,” including third-quarter earnings estimates that peaked in early August, a break in a 12-month pattern where estimates continued to rise, he said. 

Also, in terms of the breadth of stock-market strength, “the average stock peaked in June,” said Doll, former chief equity strategist at Nuveen Asset Management who earlier was chief equity strategist at BlackRock Inc.. “What’s that telling us? It’s telling us the market’s getting a little tired.”

Still, companies have showed resilience throughout a pandemic that locked down parts of the economy for months at a time. The Federal Reserve’s accommodative monetary policy and federal fiscal stimulus have helped maintain both earnings and stock prices.

“If you had told me there are more companies in the S&P 500 that would benefit from covid than would be hurt, I wouldn’t have believed you,” Doll said. “But that’s exactly what happened. Corporations are figuring out how to morph. They’re dealing with very low interest rates. They learned how to raise prices in an environment where pricing power is coming back. They’ve kept costs down. Corporations have morphed in lots of ways that cause them to print these excellent earnings reports.”

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