BlackRock’s chief equity strategist, Bob Doll, says that the Fed’s highly criticized second round of monetary easing — along with the extension of the Bush tax cuts — has clearly helped support the economy.
Now a real, business-led recovery is on the way, which should increase demand for stocks and push markets higher, Doll contends.
“In our view, while the rally has been strong, it is not yet exhausted,” Doll told clients in a note. “Although a short-term correction could take place at any time, equities remain relatively inexpensive and we believe the bull market should continue.”
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The economy is clearly transitioning from a recovery phase to an expansion phase,” Doll says, resulting in “self-sustaining” trends such as better consumer demand, improving corporate earnings, and more corporate investment.
The Dow Jones Industrial Average has now doubled from its March 2009 bottom, leading some, including newsletter guru Mark Hulbert and Gluskin Sheff’s David Rosenberg, to predict that a sharp correction in stocks seems inevitable.
Doll does not discount the possibility of a correction, but he sees that turn of events — if it happens — as a short-term move down in a longer bull market revival. He thinks stocks are cheap and advises investors to buy the dips.
Despite the growing recovery he sees, Doll is unconcerned that inflation will take away the punch bowl. In part, he says, that’s because food inflation is much more of a problem in poor countries than in the United States and Europe.
“There is still a great deal of slack in the world’s developed market economies (which can be seen in the labor markets), and we do not believe we need to be overly concerned about inflation,” Doll said.
Federal Reserve Bank of New York First Vice President Christine Cumming seems to agree with Doll, saying inflation in the United States should remain “relatively low” while the recovery wobbles.
“While trend inflation is quite low at the moment, we see it likely to be near the low point of this cycle,” Cumming said at speech in London, according to prepared remarks released to the press.
“However, underlying inflation fundamentals suggest relatively low trend inflation for some time.”
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