Tags: BlackRock | Doll | Bull | Market

BlackRock’s Doll: Bull Market Hasn't Yet Reached Its Highs

Wednesday, 16 May 2012 11:49 AM

BlackRock chief equity strategist Bob Doll says this bull market hasn't peaked yet, regardless of appearances.

"Although markets have been troubled in recent weeks, we do not believe investors should confuse the current situation with an ending to the bull market that has been in force since early 2009," Doll writes in a note to investors.

"Historically, sustained declines in equity prices tend to be associated with either economic downturns or earnings recessions, neither of which appears to be in the cards."

Editor's Note: I Wish I Were Wrong — Economist Laments Being Right. See Interview.

Even though the primary risk to the global economy and global markets is the ongoing debt crisis in Europe and many investors worry that China is heading for a hard landing, Doll continues to believe that the United States appears to be in the midst of a manufacturing renaissance as most data is pointing to an expansion in manufacturing activity.

“Overall consumer and business sentiment have been improving as well and we have even been seeing some signs of life in the housing market,” says Doll. “Additionally, exports have remained resilient for some time now and continue to represent an important source of strength.”

Also, corporate earnings remain a bright spot for the U.S. economy, says Doll.

"Thanks in large part to low interest rates, improvements in productivity and a lack of upward pressure on labor costs, corporations have been able to maintain and grow their earnings," he says. "The pace of earnings growth has slowed compared to recent quarters, but most companies are still reporting results that are ahead of expectations."

At present, Doll believes the risk premium for U.S. stocks looks high, which implies that the markets have already discounted some significant downside risk in share prices.

“The risks are real, but in our view, as long as the economy is able to continue along the path of recovery, the risk premium should fall in the coming months,” Doll says.

“We maintain our view that the current bull market has not yet reached a peak.”

But not all investors are looking kindly on stocks these days.

Investors are shunning the stock market because of distrust as well as fear, and policymakers should take notice and strive to restore trust, argues The New York Times.

Investors aren't keeping their money out of stocks just because of recent asset bubbles and stock market crashes. Scandals and the slow, uncertain pace of financial reform, as shown by the recent $2 billion trading loss at JPMorgan Chase, have destroyed their trust in stocks, the Times asserts in an editorial.

If stock markets don't regain investor trust, it argues, fewer companies will raise money by issuing stocks.

Editor's Note:
I Wish I Were Wrong — Economist Laments Being Right. See Interview.


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