One on One with Robert Doll, Vice Chairman & CIO, Black Rock
Monday, June 25, 2007
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SUSIE GHARIB: Even though stocks sold off today, our guest says the markets will still end the year higher. That was one of his 10 predictions when I talked with him back in January. A short while ago I checked in with Bob Doll, vice chairman and global chief investment officer of equities at Black Rock, for his mid-year update. I began by asking if the bull run on Wall Street is over.
ROBERT DOLL, VICE CHAIRMAN & CHIEF INVESTMENT OFFICER, BLACK ROCK: Don't think so, Susie. We use the phrase at the beginning of the year reasonably constructive to describe this year. The constructive means an up year. The reasonably means maybe not as much as last year and a few more bumps along the way. Volatility is normal when you're an equity investor. When you own stocks, you got to go to go through life with your seat belt on.
GHARIB: Bob, let's go over your predictions. The first one on your list is that you said the economy is going to slow to 2-2.5 percent. Any change there in your prediction?
DOLL: No. We think the U.S. economy below trend because of housing, 2-2.5 is a good number.
GHARIB: All right. How about prediction number two on earnings? First quarter numbers were pretty strong. Are you still on track for this prediction?
DOLL: They were. What's happening, Susie, is because of the S&P's significant representation outside the U.S., profit growth is slowing less quickly than economic growth. And our guess is when the year is said and done, a single-digit year for earnings growth, much less than the last five.
GHARIB: Prediction number three deals with inflation and interest rates. Are you still predicting that the Federal Reserve will cut rates by the end of the year?
DOLL: Our guess is there's still some possibility. They may defer that to the first of next year, but the prediction really was meant to say slightly inverted yield curve beginning of the year, slightly positive at the end of the year. We think that comes true.
GHARIB: Number four is with your market outlook, you said more volatility, some bumps along the way. So what are you saying is the outlook for the year?
DOLL: We think this is going to be another good year for the record books for equities. But there are just a few more bumps along the way. The last couple years have been pretty smooth as you know Susie. Our view is the year is less than half over, but the gains for the year are more than half over. So a more difficult second half but still up. Stocks closed higher than where they are today in our view.
GHARIB: Bob, you said that large cap stocks would outperform small cap stocks. So far they've been slightly better. How is it going to play out for the rest of the year?
DOLL: Our guess is Susie that big stocks will continue to beat smalls. They did the first 5 1/2 of this year but maybe the lead lengthens a little bit during the second half. Big stocks are delivering better earnings growth than small ones and they're cheaper.
GHARIB: All right. In terms of sectors, you favored when we talked in January you favored energy, health care and the tech sectors, how about now?
DOLL: Still like all of those, Susie. Obviously energy has worked very well after the tough start in January. Our guess is with price accrued staying stubbornly high those set back sector works again. Health care we like for the aging of the population and the demographics. Technology is always controversial, but if the world is going to continue to grow above trend it will spend money on tech.
GHARIB: Let's talk a little bit about the dollar. You predicted declines to its lowest level in a decade. Any change on that thinking? Is this a negative for the markets?
DOLL: Well, it's positive and negative as these things always are, Susie. The decline of the dollar has a positive effect on earnings translation back to the U.S., but of course it robs the U.S. of standard of living relative to the rest of the world. Our guess is over the next year or two, the dollar slowly but surely keeps working its way down because of all the imbalances in this country.
GHARIB: All right. You predicted that Japanese stocks would outperform other global markets. Doesn't look like that's happening. Are you revising your prediction there?
DOLL: Of the 10, this is the one we're struggling with most. The Japan market has lagged as you pointed out. Our view is with Japan's geographic proximity to booming Asia, with the end of deflation, with reasonable earnings growth, Japan will do better as the year progresses, but it's going to have to play some catch-up for this prediction to come true.
GHARIB: Prediction number nine says that volatility will increase. We've had plenty of evidence on that. Let's jump ahead to 10. You say the populist politics experiences a renaissance. Are you seeing that? Is it too early to tell?
DOLL: We think there are. There are lots of noise headline risk, let's put it that way, around populism related to creeping protectionism, lots of talk about raisings taxes on this group and that group, a lot of noise. We don't think we get a lot of legislation this year, Susie, but it's political season. The candidates want votes. When you want votes, you usually talk more populist. More of that to come.
GHARIB: In 10 seconds what's your advice for investors?
DOLL: Our view is stick to the long term. Make sure you have diversification beyond the United States. If your time horizon is long enough, stocks are cheap relative to bonds so be over weighted in equities. That's our view.
GHARIB: Lots of good information. Bob, thank you very much.
DOLL: Thanks, Susie.
