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LOOKING FORWARD, CROSSMARK GLOBAL SEES RISING BOND YIELDS AND CHALLENGED STOCKS

As a result of tariff announcements, new immigration policies, DOGE cuts, and the so-called One Big Beautiful Bill, Bob Doll, CEO and chief investment officer at Crossmark Global Investments, says 2025 saw numerous shifts in the economic outlook.

"2026 will likely be supported by several decent tailwinds that should boost the economy: net stimulus from the OBBB, fading tariff uncertainty, easing financial conditions, foreign direct investment, and potential tariff refunds," writes Doll in his latest "Deliberations."

He adds, "It should be another interesting year for the Fed, with a new chair stepping in and the policy rate nearing the neutral estimate. As always, the consumer picture will be key. Similar to 2025, AI capex should be a continued support for growth."

Crossmark Global anticipates real growth of 2% to 2.5% next year with inflation close to 3%.

That said, Doll believes inflation over the next decade will well exceed central bank targets, with a weaker U.S. dollar being a contributing factor.

With this, Doll expects G7 long bond yields to rise over the next six to 12 months against a backdrop of solid global growth, lingering inflation worries, and rising term premia, given weak G7 fiscal fundamentals and uncertainty over the coming change in Fed leadership.

As for stocks, Doll admits that while global equities have tailwinds, already rich valuations and elevated earnings should hinder upside in absolute terms and imply major downside risk if earnings fail to meet expectations.

Crossmark Global expects U.S. equities to deliver low real returns over the next decade.

"The U.S. equity valuation premium relative to the rest of the world has narrowed recently, even as the U.S. earnings advantage has been sustained. That said, the valuation premium remains very large and [is] likely to diminish further if the economic and earnings growth gaps between the U.S. and the rest of the world narrow in the years ahead," Doll writes.

(Terence Gabriel)

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