BlackRock's Bob Doll Expects U.S. Equities to "Grind Higher" in 2008'S Second Half, with Help of Global Growth, Stronger Earnings, Moderating Inflation

Business Wire, June 30, 2008

Environment Favors Large Cap, High Quality, Growth Stocks

A focus on larger capitalization, higher quality stocks and growth styles will continue to make sense in an environment of weaker economic and earnings growth, Doll said. "As a specific area of focus, we would point to U.S. multinationals - companies that derive a significant percentage of their revenues from overseas operations - as an attractive investment opportunity, as these companies currently offer good growth and high quality, and are selling at reasonable prices," he said.

Doll favors the information technology, health care and energy sectors but counseled continued caution regarding financials. "These have been particularly hard hit this year, and we're not convinced that we have yet seen the bottom for this industry," he said.

Going forward, the U.S. equity market may continue to perform better than most other developed markets, Doll said. "Thus far, the U.S. market has weathered the downturn relatively well," he said. "We expect U.S. stocks to continue to outperform in the current environment, since the U.S. is generally a more defensive market."

At the same time, Doll encouraged investors to complement their U.S. holdings with faster-growing international markets, and to take a close look at emerging markets in particular. "Emerging markets have been growing twice as fast as their domestic counterparts, and today account for roughly one-third of global gross domestic product," he said.

Update on "10 Predictions" for 2008

In his mid-year update and outlook, Doll also revisited his annual "10 Predictions" on the markets and the economy, which were first made in January.

"At the halfway point for the year, most of our predictions remain on track," he said. "Global growth has clearly slowed, earnings have declined sharply and the Fed has cut rates drastically. Some of our predictions are looking a little more dicey, most notably our call that oil prices will end the year lower than where they started and our prediction that stocks will reach a new all-time high in 2008.

"The year still has six months to go, however, and if 2008 has taught us anything it is that market movements can be sudden and drastic in this environment," Doll said.

Here is Doll's mid-year commentary on his "10 Predictions."

1. World growth dips below trend for the first time since 2002.

The global economy has clearly weakened in the first half of the year. The U.S. economy has been leading the way on the downside, but other developed markets have also been slowing. European growth has declined since mid last year, but it has yet to break clearly below the long term trend of around 2%. Japanese growth has also slowed sharply, but the Japanese economy remains stronger than that of the U.S. Importantly, the emerging market experience has been very different. Emerging market exports to the developed world (particularly the U.S.) have clearly weakened, but trade flows between emerging markets have held up. To a large extent, this decoupling between developed and emerging markets can be attributed both to emerging economies being less affected by the credit crunch, and also to the fact that many emerging markets are commodity exporters rather than commodity importers.