Jason Stipp: One thing that the market has had a hiccup over is talk of the Fed tapering. You mentioned the Fed there has been dovish, but I think a lot of the governors do want to start to take some of that [stimulus] away.
I guess the question, though, is, if I'm a long-term investor, if I'm looking past next year or even the next two or three or four years, what should I be thinking about this taper talk? Is it really going to have an impact on the decisions I make today for my equity portfolio?
Bob Doll: Great question and the right question. My guess is no, it doesn't.
Let's face it: We've had a Fed over the last [five-plus] years that's had the pedal anywhere from accelerating to right down to the floor. At some point, they are going to go the other direction, and while tapering is different from tightening, there is no question you can't tighten until you've tapered first. And so the direction investors need to keep in mind is, the world is healing and probably going to show a little broader growth in 2014, permitting the Fed to do what we all want them to do: go back to normal someday, folks. And when we do, the world will be back to normal, too.
Stipp: So, we'd really like to see the baton go from stimulus to actual economic growth to bolster the economy and the markets.
Doll: Bingo. As we saw earlier in the year, when the Fed postponed tapering, they are only going to do if the economy is acceptable.
Stipp: One thing about the taper talk, though, is that it has shown the market is really sensitive right now, which could imply that valuations are a little lofty. Do you think that's the case? If I want to set my expectations for next year, should I set them thinking that the market might look a little rich now?
Doll: I think that's not unfair. I've put it this way: We've been in a long ballgame of price to earnings (P/E) ratios moving up, valuations going up. I don't think the ballgame is over, but I do think we're in the later innings--meaning, if we're going to have a meaningful move up from the stock market at this point forward, we need visibility on better revenue and earnings growth. I think we'll get it, but we can't rely on P/Es to carry us a whole lot further.
Stipp: We're going to have to start to see fundamentals--again passing that baton, hopefully?
Doll: Yes, sir.
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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.
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