One on One With Robert Doll, CIO, Merrill Lynch Investment Managers
Thursday, July 13, 2006
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SUSIE GHARIB: Despite today`s sharp sell-off, our guest tonight says the stock market is still poised to post gains for the year. That was one of his 10 predictions when we talked with him back in January and he joins us now to update the list, Robert Doll, president and chief investment officer of Merrill Lynch Investment Managers. Hi, Bob.
BOB DOLL, PRESIDENT, MERRILL LYNCH INVESTMENT MANAGERS: Good evening, Susie.
GHARIB: Let`s first get your take on the market action today. With escalating tensions in the Middle East, high oil prices and worried investors, what gives you confidence that stocks can still end the year on the up side?
DOLL: Well, as you pointed out a few minutes ago, we`re very close to the break-even level for the year, which means we need just to trade modestly higher to get there. I think we`re probably going a little lower first, however. As you pointed out, turmoil in the Middle East, high oil prices not good news for equity holders. And then there are those second quarter earnings which so far are not so good. So I think we have further sell-off to go before we grab hold, hopefully, resolve some of the uncertainties and have a chance for a year-end rally.
GHARIB: Let`s look at the first five of your predictions. The economy slows, earnings weaken, bond yields invert and the markets experience a 10 percent correction and large cap stocks are the market leaders. So it looks like you`re on target for most of those predictions.
DOLL: By and large that`s the case. The tone of those predictions is slower growth, disappointing earnings, market not so good. We expected this to be a rougher year and it`s turning out, unfortunately, to be that way. We are yet to see the large caps dominate for the year. Certainly they`re doing better in this correction. When the year is said and done, we think large will have outperformed small, Susie. So, so far so good on those predictions. GHARIB: Let`s look at the next batch of your predictions. The dollar falls, overseas markets do better than the U.S. and a boom year for mergers and stock buybacks and commodity prices rise. We sure know we`ve seen oil and gold go up. Do you see these trends continuing for the second half?
DOLL: We certainly do. Commodities have had a roller coaster ride but since the first of the year point to point, they`re up pretty nicely in most all cases, I guess natural gas a pretty significant exception. But look at the price of oil. Despite commodities in general coming down a lot in the correction, new high to new high pointing out geo-political problems as well as plain old good fundamentals, supply and demand. As long as the demand for the commodity is strong and supply is questionable, the price will go higher. We`ll need some pause in the price of oil rise in order for stocks to do better if we see $100 oil, as one of your earlier commentators said. I doubt we have an up year for stocks. So we need that part of the world to calm down somewhat.
GHARIB: Let`s talk about your last prediction, number 10, where you say that the Republicans retain control of Congress. What is your view of the midterm election?
DOLL: Well, obviously that prediction at the beginning of the year was a little easier to make than now or so it seems. Our view is while the Republicans are struggling without question, the Democrats don`t come up with a whole lot of good answers, either. So our view is come election day, the Republicans will, if you will, stumble across the finish line. They`ll lose some of the lead, but probably retain both houses, although it`s getting a lot closer. And all that`s important for the markets as it relates to tax policy and the like, Susie.
GHARIB: So it seems like most of your predictions are on track and that this is going to be a year where investors are going to have to struggle in difficult markets. Do you have any advice for investors -- long-term investors of what they should be doing in this environment?
DOLL: Yeah. It`s -- as was the case last year, Susie, the market gains overall weren`t great. Let`s hope we have market gains this year and a better second half than we`ve seen the last few weeks. But investors need to pay attention to what the earnings profile and the valuation as the companies they own. Good old-fashioned fundamental research. To be patient, to be willing to buy on dips, if you accept our thesis that we`re not going into a global recession. We don`t think there are a lot of excesses. We still have job growth. We still have wage rate gains, albeit a slower pace. And, yes, housing among other things is slowing, but our view is the U.S. consumer, more importantly, the U.S. corporate sector with incredible free cash flow is likely to put a floor under this market not far from where we are.
GHARIB: All right. We`re going to have to leave it there. We`ll have to catch up with you at the end of the year. Thank you so much, Bob.
DOLL: Thanks, Susie.
GHARIB: We`ve been speaking with Robert Doll, president and chief investment officer of Merrill Lynch Investment Managers.
