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Why investors should get ready for a market ‘tug of war’

Bob Doll, chief investment officer at Crossmark Global Investments, discusses why he sees inflation risks as being to the upside and why investors should expect bond yields to rise if growth remains as strong the firm expects over the next 12-18 months.

Video Transcript

MYLES UDLAND: But let's talk to someone who is certainly thinking about what the story could look like over the next year. That's Bob Doll. He's the chief investment officer over at Crossmark Global Investments. Bob, great to talk with you this morning.

So let's start with how you're thinking about this inflationary backdrop and what areas you like or don't like as we do look at what's set to be a unique inflation regime, relative to anything we've seen, really, in the last decade.

BOB DOLL: I think you've all, in the last couple of minutes, put it together well. There is a tug of war. And on the one side, you've got this incredible economic and earnings news. And that's not going to give up any time soon. We're going to get an amazing print for second quarter GDP. And the earnings numbers will reflect that.

But on the other end of the tug of war rope, pulling in the other direction, is OK, that's all great. But do I have to have some higher inflation and higher interest rates to pay for all that? Is that the consequence? I think the answer is probably yes. And we're going to get that back and forth tug of war.

Look, with all the liquidity out there, which was not mentioned the last couple of minutes, the path of least resistance for the stock market, I think, is still higher. But I don't think it's going to be a straight line. I think it'll be to-ing and fro-ing that may disappoint and frustrate both the bulls and the bears over the next few months.

JULIE HYMAN: Well, if you're a longer-term investor, Bob, is there any reason not to just buy the SBYs here and just sit pat?

BOB DOLL: I think you can do that. Look, with the power of the economy and earnings, it's very unlikely we're going to get a big downward move in the stock market. You have to talk about a recession to think about that sort of thing. And the probability of that is pretty low here in the next bunch of months.

So I'm not going to fight you on that. But I think that certainly is what has worked in the last 12 months. Buy them, hold them, sit back, and enjoy the ride.

All I'm trying to say is, going forward, it gets a little choppier. So maybe you play it a little cute wait for pullbacks to put that money in if you have that kind of discipline.

BRIAN SOZZI: Bob, I think the last time we talked to you, you were at Nuveen. So you just started a new firm or a firm we've talked with extensively at Crossmark. What is a faith-based investment firm? That's what Crossmark says it is. And the fact that it's faith-based, does that prevent you from dabbling in crypto?

BOB DOLL: It does not. Faith-based means that's the origin and that's the viewpoint of the folks that manage the money and run the firm. We create values-based products for our clients. And look, you and I can have a different set of values. We have our point of view. But you can come to us and say, well, that's not exactly mine. Can you tailor it this way? And given the disciplines and the tools we have, we can create what it is that people think about.

So there's nothing, if you ask us to, we can't invest in. Left to our own devices, we have some things that will root out some of the things that we'll emphasize, assuming the companies we invest in have the good secular tools, strong businesses, good balance sheets, cash flow, good managements, et cetera. So that, in a nutshell, is what values-based investment is.

MYLES UDLAND: And Bob, it makes me think about this trend that we've really seen. And it's certainly been one of the most formative trends of my career following markets has been the rise of ESG and how people think more carefully about where they're putting their money to work. I mean, does the work that you guys are doing at Crossmark-- maybe it's not ESG specifically. But it certainly is riding that wave of savers and pension funds being a lot more intentional with who they invest their money with, whereas previously, maybe the competition was, let's say, only on fees or something like that.

BOB DOLL: Well said. It's multi-dimensional, that is to say, you still want companies that are great investments because the business is sounder, engineering it well, the cash flows, to repeat, are all good. But can you layer on top of that that this company is doing good? Are they promoting justice? Are they promoting family values and taking care of their employees, their community, their environment?

And there's now enough evidence in this realm that you don't sacrifice anything. In fact, you can get a little more in terms of return if you focus on those issues in addition to the things that have been going on for decades, if you will.

MYLES UDLAND: Yeah. I guess, maybe a way to layer some more qualitative work on top of, as you know, a world that has gone heavily quantitative in the investing landscape. All right, Bob Doll, chief investment officer at Crossmark Global Investments. Bob, always great to get some time with you. Thanks so much for jumping on this morning.