The strong market run of early 2012 might not continue, but investors should stay long stocks, says Bob Doll, chief equity strategist for fundamental equities at investment firm BlackRock.
The U.S. economy is likely to “muddle through” and, despite the unlikelihood of ever-improving economic data, stocks will remain a good bet, Doll writes in his weekly commentary.
Corporate earnings should close ahead of expectations and the problems in Europe, while significant, will continue on a path of central bank policy actions and slow government reaction to crises as they happen. That is creating a “risk on, risk off” environment, but one that investors should continue to buy, Doll contends.
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“Notwithstanding last week’s modest setback, risk assets have enjoyed a strong run over the past couple of months as reduced fears from the European Union financial problems and a better economic climate in the United States have driven investors back into stocks and other risk asset classes,” he writes.
“Our view is that the ‘risk on’ trade is the right one in the long term given that the world’s major economies are healing and that debt problems are slowly improving,” Doll concludes.
Corporate earnings, which rely in part on exports, might be doing well, but the U.S. economy itself is nearly stalled, according to new data from UCLA.
The Ceridian-UCLA Pulse of Commerce Index (PCI) tracks the flow of goods across the country by measuring sales of diesel fuel to truckers in real time.
The latest data shows a 1.7 percent decline in January on the heels of a revised 0.4 percent fall in December. The January figure indicates no growth in diesel consumption since the middle of 2010.
“It seems difficult to square the behavior of the PCI with the evident improvement in a number of economic indicators, most notably the increase in payroll jobs and the decrease in initial claims for unemployment,” said Ed Leamer, chief economist for the PCI and director of the UCLA Anderson Forecast.
“The PCI also seems out-of-sync with industrial production and with real retail sales, which continue to grow in a healthy manner while the PCI is stalled out.”
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