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BOB DOLL TURNS INCREASINGLY PESSIMISTIC

Good news for the bulls here – some of the world’s most noted permabulls are sounding increasingly bearish here.  In his most recent weekly commentary noted optimist, Bob Doll of BlackRock, waved the caution flag:

“Last week’s decline marks the fourth time in recent weeks that stocks have tested the lows reached in August (marked by 1,100 for the S&P 500). Whether or not stocks pierce that low will have much to do with what happens in Europe. Should the chaos increase and contagion spread, markets would likely move below that level.

Looking ahead, we expect that equity markets will continue to struggle until we begin to see some actual improvements in the economy. Specifically, stocks need to see some improvements in payrolls and consumer spending levels. As we indicated earlier, we do believe that the US economy should slowly improve, but risks from Europe are mounting.”

If you’re looking for a positive sign within the sea of bad news, this sort of change in sentiment might just be the thing you’re looking for.  After all, equities reflect the summation of the beliefs of participants regarding future performance compared to reality.  If sentiment swings deeply negative and essentially overshoots where the economy is in terms of reality, then you get a natural bottoming effect where the sellers exhaust themselves and the market as a whole begins to realize that there is value at current prices.

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