Though the U.S. economy will grow at a below-trend pace in 2007 and the equity markets will remain volatile, stock prices should still end the year higher than they are today, according to Robert C. Doll, vice chairman and global chief investment officer of equities at BlackRock, Inc.
“We are maintaining a reasonably constructive outlook for the equity markets for 2007 with ‘constructive’ signaling an up year, but ‘reasonably’ suggesting performance will not be as good as last year, and with more angst and volatility along the way,” Doll says. “The underlying message to investors is to be realistic. Recognize that we’re in a lower return/higher volatility environment, where the tailwinds of the bull market are not as strong as before. It’s an environment where skillful security selection will remain paramount.”
According to Doll, second-quarter U.S. GDP growth is expected to come in above the 3 percent mark, which would erase some of the weakness from the first quarter.
“For the second half of the year, we expect GDP growth to be somewhere in the 2 to 2.5 percent range, figures that remain below the long-term trend, but that are still strong enough to keep earnings advancing,” he says.
Short-term concerns for the markets include higher bond yields as well as the possibility of a near-term equity market correction precipitated by technical factors.
“In recent years, periods of economic weakness have tended to trigger falling bond yields, which in turn helped to provide a relief valve for stocks,” Doll says. “That clearly is not happening now.”