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BlackRock's Doll: Tax Deal to Push More Cash Into Stocks, Out of Bonds

Thursday, 09 Dec 2010 08:56 AM

U.S. stocks will win investors' favor over Treasurys in 2011 as the U.S. economy outperforms developed-market peers, and a tax deal between the White House and Republican leaders will be icing on the cake, BlackRock's chief equity strategist said.

Bob Doll, who helps manage more than $3.3 trillion in assets, told the Reuters 2011 Investment Outlook Summit the deal to extend the Bush-era tax cuts will "accelerate" the move of cash into equities and out of fixed income.

"First of all, an unknown is removed. Markets don't like unknowns and if you don't know something you kind of tend to own a few more Treasurys and a few less stocks," Doll said.

The plan by President Barack Obama to broadly extend the tax cuts edged forward on Wednesday, as Senate Democratic Leader Harry Reid said the proposal to extend all the tax cuts could move quickly in the Senate.

Doll said that, in addition to reducing uncertainty, the tax cuts will put cash in investors' pockets and even add to U.S. growth prospects.

"Even before that, you had the real economy in the last couple of months slowly but surely getting better, and this is some icing on that fairly newly baked cake," he said.

Doll said some economists are already revising upward their forecasts for economic growth in 2011, which could prove to be a positive surprise for corporate earnings.

He expects the S&P 500 to finish 2011 at 1,350 from its current level of 1,227, while U.S. debt prices fall further. For Reuters global equities polls, see and.

Treasurys sold off heavily on Wednesday for a second straight day while stocks have moved up only modestly because cash is still going to sidelines, Doll said.

"But some money will go to equities. We know money goes to what is going up."

Doll, however, does not exclude possible bouts of volatility due to economic scares or sovereign debt problems — which could happen in the eurozone or even in a U.S. state.

But he believes governments will find ways to get their economies back on track.

"Scares? Yes. Sell-offs? Yes. But I think the Band-Aids are going to be found." he said. "Pull backs are buying opportunities in this muddle-through economy, grind-higher equity environment."

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Doll is betting that U.S. stocks will outperform other developed markets as the U.S. economy recovers faster than economies of Europe and Japan, despite the "paucity of growth" and lingering debt problems.

One reason for the expected outperformance is demographics, Doll said. "We have more babies, we have a higher fertility rate and we have more immigrants."

On emerging markets, Doll said BlackRock continues to overweight emerging market stocks despite concerns about valuations and resurging inflation.

"My simplistic mind says: higher growth and lower debt. Isn't this a good thing in this world?" Doll said. "And that is what the emerging markets have over the developed markets."

His portfolio includes companies generating free cash-flow as it provides an additional cushion against economic uncertainties. He overweights materials, energy and technology stocks which should benefit from a cyclical recovery.

Among his underweights are consumer staples — on concerns about valuations and potential cost increases from raw materials — and financials.

"What is the new model for the financial sector and banks in particular to earn their money? I don't think we really know the answer to that question yet," he said.

© 2017 Thomson/Reuters. All rights reserved.

 
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U.S. stocks will win investors' favor over Treasurys in 2011 as the U.S. economy outperforms developed-market peers, and a tax deal between the White House and Republican leaders will be icing on the cake, BlackRock's chief equity strategist said. Bob Doll, who helps...
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2010-56-09
Thursday, 09 Dec 2010 08:56 AM
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