Advisors might tell clients to consider taking profits before long, as the stock market is likely to experience a pullback sometime early in 2025, according to Bob Doll, CEO and chief investment officer of Crossmark Global Investments.
Investors should have “a little less risk” in their portfolios now than they did on Labor Day, “because stocks are up a bunch since then, and we don't know that the world's going to be that much better than it was,” Doll told ThinkAdvisor in an interview on Friday.
“I think advisors need to say to their clients, ‘Look, you've been in the risk assets, stocks in particular, you've made a ton of money, let's not be a hero,’” he said. Stocks are trading at 25 times this year’s earnings and 28 times trailing 12-month earnings, Doll noted. “That's rarefied territory.”
'Near Perfect World' Priced In
The market “is discounting a near perfect world” as investors expect the incoming Trump administration’s policies to benefit stocks, he explained. “And, you know, we might get a near perfect world, don't get me wrong, but the alternatives to a near perfect world are probably not rosier than what's being discounted. They're probably softer than what's been discounted.”
So a financial advisor might ask, “What's our long-term plan? What are we trying to get done? And, you know, taking a profit now and then is not the worst thing in the world,” Doll said.
“The momentum probably takes us into the new year,” the CEO said, speculating the market will see a “noticeable pullback” sometime in the first quarter as the reality hits that it may take longer to accomplish the changes expected in a Trump administration or that they might not all get done.
“So at some point I think the market will say, ‘Yeah, these are good things, but you can't do them all, or it's going to take longer than thought.’ And the valuation level comes in a bit at some point in time,” Doll said.
He cited, for example, President-elect Donald Trump’s planned Department of Government Efficiency’s goal to cut $2 trillion a year from the federal budget.
“There's plain and simple no way, unless they touch the entitlement programs and/or whack defense really hard. There's not enough money there. And therefore I think people that are thinking that they're really going to find $2 trillion without touching those programs are in for a rude awakening,” he said.
The market’s been looking toward tax cuts and an easing on regulations in the upcoming Trump administration, “which arguably is great news for the stock market,” but Trump also has talked about tariffs and deportation, “and neither of those are a tailwind, instead they're headwinds for the market,” Doll said. “So which ones is it? Which ones are they going to do first?”
