He points out that so far the recession in Europe looks to be “reasonably” mild for core countries albeit more significant for peripheral Europe.
“The critical question is whether or not the debt crisis will begin to ease and obviously the jury is out on that one,” he added.
One the other side of the Atlantic the US economy continues to muddle through and Doll expects this to remain unchanged. At the beginning of the year it was expected that earnings would grow moderately and fail to exceed estimate for the first time since the Great Recession of the 1930s, and this has been borne out.
“Earnings have been growing at a decent pace this year, but it does seem that expectations were too lofty at the beginning of the year,” he admitted.
Things aremore unsettled on the US equities front. BlackRock predicted that US equities would experience a double digit percentage return as multiples rose modestly for the first time since the Great Recession.
“Price-to-earnings ratios have advanced since the beginning of the year and should that trend continue, we’ll get the second half of this one right. For the first half to be correct, the S&P 500 Index would need to close the year at 1,350 or higher. After a strong last trading day of the second quarter, that’s about where we are and we think stocks have a good chance of advancing further in the second half of the year,” Doll explained.
He also pointed out that US stocks have outperformed non-US stocks, as predicted, thanks in large part to solid earnings and strong cash flow yields. On a year-to-date basis, US stocks are up around 7%, while non-US markets are down slightly.
As far as Asia is concerned the prediction that China and India would contribute more than half of the world’s economic growth still seems likely. Although both have been slowing in terms of economic growth, given that there is little robust growth anywhere in the world, China and India do appear to be set to generate more than half of the world’s growth this year.
Company dividends and share buybacks have not year reached the record high that the firm predicted as companies are still hoarding extremely high levels of cash. Doll said that he expects they will continue to deploy that cash in a variety of shareholder friendly ways.
Health care and energy have not outperformed utilities and financials with healthcare and energy up only modestly at the half year stage, while utilities and financials are up in the mid-single digits.
The firm’s wildcard prediction has been that the Republicans will capture the Senate, retain the House and defeat President Obama. “Regarding Congress, we think there is a better than 50% chance that the Republicans capture the Senate and a much better than 50% chance that they retain the House. At this point, the presidential election looks as if it could go either way,” said Doll.
