Despite a few discouraging signs last week BlackRock is still firmly in the bull camp. Their Chief Equity Strategist, Bob Doll, says the economic recovery is transitioning from a government aided recovery to a self sustaining recovery. Doll sees last week’s GDP report confirmation of this:
“In all, the report confirms our view that the economy is transitioning from a government-aided recovery to a self-sustaining expansion. The key factor remains growth in private sector jobs, and we expect to see moderate growth in this area over the course of the year. Looking ahead, second-quarter GDP growth would have to come in at 4.5% for the US economy to get back to its 2008 peak. Such strong growth is unlikely and, therefore, we expect the economy to transition into expansion in the third quarter.”
Doll says the Fed is beginning to transition towards a policy tightening phase as the economy continues to recover. He expects the Fed to raise rates before the end of the year:
“As we have been saying for some time, we expect the Fed will begin signaling an increase in rates before too long, with higher rates likely by the end of the year.”
He is undeterred by the problems in Greece, which Doll says should not disrupt the global recovery. In addition, he says the markets should continue to rally as cash offers poor returns and valuations on stocks remain attractive:
“Spreads on Greek and other sovereign debt in Europe rose to new highs last week. The broader question for investors is whether the events in Europe signal a disruption in the global economic recovery and an end to the bull market in risk assets. Our answer to this question is “no,” and we expect that the coordinated and comprehensive IMF and EU packages should alleviate at least some of the issues. Before last week, the rapid ascent in equity prices had been a cause for concern and, as last week’s downturn shows, markets remain vulnerable to corrective forces. To date, the problems of the sovereign debt crisis, global policy tightening and regulatory restrictions have been outweighed by the broader improvements in the global economy and rising corporate profits. Given the low returns offered by cash and the still-reasonable valuations for stocks, we expect that this trend will continue.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.