Bob Doll, Chief Equity Strategist at BlackRock, is still confident in his bull market thesis despite the recent turmoil in markets. In Monday’s strategy note Mr. Doll says the odds of a double dip are still very low:
“On balance, we continue to believe the economy is healing, although it does appear to have hit a soft patch. The question is, how intense will this soft patch be? Housing will likely remain weak for some time, but the manufacturing sector has been strong and the consumer sector is still relatively resilient. Jobs growth remains the key variable, but we do expect to see continued growth in employment levels for the balance of this year. The US and global economies remain fragile and are highly susceptible to both external shocks and the risks of policy mistakes, and we do expect the broad macro environment to continue to be buffeted by fnancial and economic uncertainties. In any case, however, we are holding to our belief that the odds of a double-dip recession are low.”
Mr. Doll also believes the bond market has this one wrong. He believes yields are unsustainably low and that low rates will prove to be fuel for the equity markets:
“With 20/20 hindsight, it seems clear that investor expectations for the economy and earnings were too optimistic during the frst four months of 2010, but we would also argue that overall sentiment grew too pessimistic in the subsequent couple of months. Looking ahead, we believe the current low levels of Treasury yields are unsustainable. Either yields will move higher as investors become more risk tolerant or economic fundamentals will deteriorate. We expect the former is more likely, and as long as our view about the economy holds, we expect equity markets will be able to grind higher in the months ahead.”
I wish I could share Mr. Doll’s optimism. Unfortunately, aside from a brief oversold & panicky bounce in stocks (primarily caused by the State Street trade) the evidence is beginning to mount that economic turmoil lies on the horizon. Exhibit A – the bond market. Ignore the signals sent by low yields at your own peril….