‘Below-normal recovery’ — but stocks will surge anyway, says Doll

BlackRock manager sees big gains for large-caps, GDP; unemployment remains a drag, however

The U.S. equities market will see double-digit gains this year while the GDP will reach an all-time high, predicts Robert C. Doll, senior managing director at BlackRock Inc.
Speaking at a gathering of reporters to discuss his firm’s 2011 outlook, he said he expects unemployment to drop to 9%, from 9.8%, and the S&P 500 to end the year at 1,350-plus.
“This is the first time that I have put a plus next to a prediction. In previous years I would just state a number,” Mr. Doll told InvestmentNews. “If we get it wrong this year, we think it’s likely that we were too pessimistic, not too optimistic.”
In general, Mr. Doll is cautiously optimistic. While last year’s theme was “Muddle Through/Grind Higher,” he dubbed 2011 “Muddle Through/Grind Higher Plus.”
Specifically, BlackRock expects the recovery to end and the expansion phase to begin in the second quarter. But growth will be healthier and more sustainable than last year’s, Mr. Doll said.
“The balance sheets of U.S. companies, while they still have issues, are much better than they were a year ago,” he said. “There will be positive growth, but make no mistake about it. This is below a normal recovery.”
Doll anticipates the creation of up to 3 million new jobs this year, which will help investor sentiment, he said. He noted, however, that the job numbers are subpar.
U.S. equities will outperform cash and bonds in 2011, Mr. Doll predicted. In fact, 2011 will be the third year in a row that U.S. stocks see double-digit returns, marking a first in a decade, he said.
As a result, investors will move from bond funds to equity funds, Mr. Doll said. “I think they will go in very slowly,” he said, noting that diversified equity funds will see inflows first, but it will take time before the money starts coming into plain vanilla equities, he said.
The BlackRock manager said he likes the energy, health care and telecommunications sectors, but he is cautious about financials and consumer staples.
One caveat that Mr. Doll made in sharing his predictions is that the credit market turmoil isn’t completely over. As more those problems surface, they could drag down the economy.
He’s still optimistic, however. “For people who are as bearish about U.S. consumers as they were a few years ago, I say, ‘I don’t think you have done your homework,” he said.