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Predictions for 2010 a" and the Next Decade -- by BlackRocka?s Bob Doll:

^{Published on 2010-01-07 16:25:30 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--The equity market rally that began in March 2009 will continue in 2010, but the market's rise will be less steep than in 2009, according to Robert C. Doll, Vice Chairman and Global Chief Investment Officer of Fundamental Equities at BlackRock, Inc. (NYSE: BLK).

"On balance, we believe the US recovery is for real -- but the economy will grow at a pace slower than that of a typical recovery"

In 2010, in the wake of the "Great Recession," the economy will continue to grow and US GDP should come in at an above-trend rate. "On balance, we believe the US recovery is for real -- but the economy will grow at a pace slower than that of a typical recovery," he said. The US economy, after contracting by 2% to 3% during 2009, will experience real growth of somewhere in the 3% range.

"Some long-term structural negatives are dampening the economic acceleration that usually accompanies a recovery," he said. "Chief among these are ongoing consumer deleveraging; a banking system facing deteriorating loan quality and an increasing yet uncertain regulatory environment; securitization markets still largely shuttered, and a real estate market that may still be healing for several years."

On balance, however, positive cyclical forces will prevail over the structural problems that face the United States, Doll said. "But the road ahead for stocks will continue to present some difficulties," he said. "From here on, the market will be driven primarily by gains in corporate earnings and real advances in the economy – not by global policy action, liquidity issues, or relief that the world has avoided a depression."

No "Rapid Expansion," But No "Lost Decade" Either

Doll has been publishing his annual "10 Predictions" for the year ahead in the financial markets and the economy for over a decade. This year, he also offered a series of predictions for the decade to come.

Doll said his overall economic/market view for 2010 is positioned somewhere between today's most bullish observers -- who are calling for a strong rebound -- and the most bearish -- who are predicting that the nascent pickup in growth will fizzle and that the United States is headed for the type of stagnation that plagued Japan in the 1990s. "Ongoing deleveraging and the credit overhang make it unlikely that a rapid expansion could occur," said Doll. "At the same time, continued aggressive support from policymakers should prevent a ‘lost decade'."

While it is now clear that stocks were extremely undervalued during the heart of the credit crisis, today they are generally fairly priced, according to Doll. "Certain sectors of the market, such as healthcare, are probably still undervalued. The same is true when looking at individual securities— in every industry, we are finding both overvalued and undervalued companies."

A Continuing Bull Market for Equities

In the next decade, Doll believes, stocks could deliver average compound annual returns of 6% to 8%.

Current, reasonable valuations and the outlook for improving corporate earnings will provide important support over the immediate future. "We foresee a slow grind upward rather than a continued powerful advance, with further dispersion between market sectors and individual stocks," he said. "In this sort of environment, security selection is more important than ever."

Market returns also will receive a boost from the re-allocation of currently undeployed cash, Doll said. "Cash investments are still essentially producing a 0% return. While anything but a negative return sounded good in the fourth quarter of '08 and the first quarter of '09, after a 60% advance in equity prices, 0% is no longer attractive," he said. "Investors have been putting cash back to work over the past several months and we believe this trend will continue, providing an important tailwind for the markets."

Unemployment will peak and job growth will turn positive early in 2010, most likely in the first quarter, Doll believes. "Our slower-than-normal economic recovery expectations are consistent with a view that job growth will be only moderate and, therefore, cause the unemployment rate to stay high," he said. "It may be several years before we see unemployment below 8% in the U.S."

Inflation will likely remain under control, Doll said. "Inflation worries are premature, especially in the developed world," he said. "Factors that will moderate inflation include today's high, excess labor and manufacturing capacity, and the fact that inflation typically falls for some time after a recovery begins. At the same time, we still lack a normally functioning financial system – making it unlikely that we will see the kind of high-powered money transmission that can fuel inflation."

Favored Sectors:Healthcare, Information Technology and Telecommunications

Healthcare, information technology, and telecommunications are among Doll's favored market sectors for 2010. Healthcare is a key choice among defensive sectors due to relatively cheap valuations and decent earnings growth. "Healthcare reform issues are slowly but surely being resolved, but the ongoing uncertainty continues to weigh on the sector and has created a buying opportunity, albeit one that should be pursued very carefully," Doll said. "In this environment, we have been favoring high quality companies."

Many information technology companies are distinguished by high-quality balance sheets and predictable cash flows. "Because this area performed well in 2009, we have reduced our portfolios' tech exposure somewhat, but we still like the sector and will look here for opportunities as we take profits elsewhere," Doll said.

"Telecommunications is a classic defensive play," said Doll. "In the current environment, this sector is also benefitting from strong yields and good levels of free cash flow."

The Decade to Come:More Frequent Recessions, China Ascendant

Doll also believes that, over the next 10 years, we will witness positive equity returns, but will also see more frequent recessions.

Additionally, in the next 10 years, the emerging markets will become an even stronger market and economic force, Doll said. "World economic growth will be led by emerging market consumers," he said. "The political and economic ascent of China will continue. On the other hand, an aging and declining population will give Europe some of the problems that Japan has recently experienced."

Predictions for 2010

Here are Doll's predictions for 2010.

Predictions for the Next Decade

In addition to his annual year-ahead predictions, Doll also offered a series of predictions for the next 10 years:

The Scorecard for 2009

Doll also provided a recap of his predictions for 2009, along with a "score" for each prediction and an assessment of the actual outcomes. For 2009, Doll issued 12 predictions, to better reflect the full spectrum of key economic and financial issues and themes that were likely to shape investment market performance over the year.

"In all, a look back at the predictions we made last year shows that the economic and market backdrop played out surprisingly close to the way we expected," Doll said.

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. With approximately $3.2 trillion under management as of September 30, 2009 (pro forma), BlackRock offers products that span the risk spectrum to meet clients' needs, including active, enhanced and index strategies across markets and asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares^® (exchange traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions^®. Headquartered in New York City, the firm has over 8,500 employees in 24 countries. For additional information, please visit BlackRock's website at [ www.blackrock.com ].

International investing involves additional risks, including risks related to foreign currency, limited liquidity, less government regulation and the possibility of substantial volatility due to adverse political, economic or other developments. The two main risks related to fixed income investing are interest rate risk and credit risk. Typically, when interest rates rise, there is a corresponding decline in the market value of bonds. Credit risk refers to the possibility that the issuer of the bond will not be able to make principal and interest payments. Investments in commodities may entail significant risks and can be significantly affected by events such as variations in the commodities markets, weather, disease, embargoes, international, political and economic developments, the success of exploration projects, tax and other government regulations, as well as other factors. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.

The opinions presented are those of Bob Doll, BlackRock Vice Chairman and Global CIO of Fundamental Equities, as of January 1, 2010 and may change as subsequent conditions vary. Individual portfolio managers for BlackRock may have opinions and/or make investment decisions that may, in certain respects, not be consistent with the information contained in this press release. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock^® to be reliable, are not necessarily all inclusive and are not guaranteed as to accuracy. Past performance does not guarantee future results. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this material is at the sole discretion of the reader.

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