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Both bulls and bears should brace for US stock market frustration next year – but not a recession-fueled crash, former BlackRock equity chief says

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Stock markets will carry on frustrating investors in the first half of 2023, veteran strategist Bob Doll said Thursday.Brendan McDermid/Reuters

  • Investors should be ready for a hard-to-read stock market in 2023, Crossmark’s Bob Doll said.

  • “It’s going to frustrate both the bulls and the bears,” the ex-BlackRock stock chief said.

  • Doll said there could be a recession next year – but said investors can still “pick their spots”.

US stock markets are likely to keep confounding both bulls and bears next year, but it’s unlikely that there will be a recession-fueled crash, according to veteran investor Bob Doll.

Doll — the CIO at Crossmark Global Investments and former chief US equity strategist at BlackRock — expects the S&P 500, Dow Jones Industrial Average and Nasdaq indexes to all carry on fluctuating through the first half of 2023.

“We’re not gonna go straight up. That doesn’t mean we have to turn around and go straight down either,” Doll told Fox Business on Thursday.

“We’re in this broad trading range, and we’re at the higher end of it. And it’s going to frustrate both the bulls and the bears.”

Investors are starting to fret about a potential US recession next year, as the Federal Reserve’s aggressive interest-rate hikes feed through the economy. Both Bank of America and Morgan Stanley have said an economic downturn could lead to US stocks crashing by almost 25% in the first quarter of 2023.

Doll said there’s no need to flee markets entirely, but it’ll be important to be selective when investing in equities.

“We might have a recession in ’23. But it’s not going to be a doozy like we’ve seen sometimes in the past,” he said.

“When we talk to financial advisors, what we try to say is pick your spots. You don’t have to chase it on the upside — wait for a pullback,” he added.

“We’re not in this straight-up bull market. So make sure you have some quality in the portfolio, but also some economic sensitivity for the other end of it.”

The veteran stock strategist was speaking after Fed Chair Jerome Powell signaled the US central bank could shift toward raising interest rates more gradually at its upcoming December meeting.

Powell’s comments helped spark a 3% rally in the S&P 500. Thursday’s lower-than-expected reading of the Personal Consumption Expenditures inflation gauge was another source of cheer for investors, because it suggested that the Fed’s tightening campaign is finally starting to tame soaring prices.

“I’m not sure there was a whole lot of good news, but I’ll take it however I can get it,” Doll said. “We have peaked in inflation, we’ve peaked at the pace of Fed increases, and now we’re going to slow from here.”

But the Fed’s tightening campaign — which increases the cost of borrowing in a bid to tame soaring inflation — will likely continue to weigh on the economy in the first half of 2023, according to Doll.

“People are looking past the slowdown,” he said. “I’m not sure we’re not going to have tests of that over time.”

“What the Fed has done is the fastest pace of rate increases in history with a lag in terms of impact,” he added. “We’re not going to know what the Fed has done and how it impacts the economy until into the first half of next year.”

Read more: Expect a US recession that will ravage markets and could send stocks spiraling down 24% next year, Bank of America says

Read the original article on Business Insider