Recovery 'below normal,' but stocks will surge anyway, Robert Doll says

The U.S. equities market will see double-digit gains this year while the gross domestic product will reach an all-time high, Robert C. Doll, senior managing director at BlackRock Inc., predicted last week. Speaking at a gathering of reporters to discuss his firm's 2011 outlook, he said that he expects unemployment to drop to 9%, from 9.8%, and the S&P 500 to end the year at 1,350-plus. “This is the first time that I have put a plus next to a prediction. In previous years, I would just state a number” Mr. Doll said in an interview. “If we get it wrong this year, we think it's likely that we were too pessimistic, not too optimistic,” he said. In general, Mr. Doll is cautiously optimistic. Although last year's theme was “Muddle Through/Grind Higher,” he dubbed 2011 “Muddle Through/Grind Higher Plus.” Specifically, BlackRock expects the recovery to end and the expansion phase to begin in the second quarter. But growth will be healthier and more sustainable than last year's, Mr. Doll said. “The balance sheets of U.S. companies, while they still have issues, are much better than they were a year ago,” he said. “There will be positive growth, but make no mistake about it — this is below a normal recovery,” Mr. Doll said. He anticipates the creation of up to 3 million jobs this year, which would help investor sentiment, he said. Mr. Doll noted, however, that the job numbers are subpar. U.S. equities will outperform cash and bonds in 2011, he said. In fact, 2011 will be the third year in a row that U.S. stocks see double-digit returns, marking a first in a decade, Mr. Doll said. As a result, investors will move from bond funds to equity funds, he said. “I think they will go in very slowly,” Mr. Doll said, noting that diversified equity funds will see inflows first, but it will take time for money to start coming into plain-vanilla equities. The BlackRock manager said he likes the energy, health care and telecommunications sectors but is cautious about financials and consumer staples. One caveat that Mr. Doll made in sharing his predictions is that the credit market turmoil isn't completely over. As more of those problems surface, they could drag down the economy. Mr. Doll remains optimistic, however. “For people who are as bearish about U.S. consumers as they were a few years ago, I say, "I don't think you have done your homework,'” he said. E-mail Jessica Toonkel at [email protected].