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Predictions for 2011 by BlackRocka?s Bob Doll:

^{Published on 2011-01-05 13:30:27 - Market Wire}
 

NEW YORK--([ BUSINESS WIRE ])--US stocks in 2011 will record a third straight year of double digit percentage returns, the first time this has occurred in more than a decade, according to Robert C. Doll, Chief Equity Strategist for Fundamental Equities at BlackRock, Inc. (NYSE: BLK).

"By the close of 2011, the S&P 500 Index will be at 1,350-plus, a target that implies that the market will appreciate at least in line with corporate earnings"

In the new year, risk assets in general and equities in particular will draw strength from continued improvement in US economic growtha"in particular, a more sustainable growth patha"coupled with improved business and consumer confidence, and a less hostile capital markets attitude in Washington, D.C., according to Doll. aBy the close of 2011, the S&P 500 Index will be at 1,350-plus, a target that implies that the market will appreciate at least in line with corporate earnings,a Doll said. The S&P 500 Index closed out 2010 last Friday, Dec. 31, at 1,257,rising over 15% for the year.

aOur expected gains for the equity markets for 2011 are not much different from what we expected for 2010,a he said. aWhata™s different for 2011 is that market risk will be more to the upside than was the case in 2010.a

The possible upside factors include an acceleration in jobs gains, a surprise in real GDP, earnings exceeding expectations as occurred in 2010, and Washington D.C. beginning to address the nationa™s fundamental debt and budget problems.

On the other hand, Dolla™s awhat can go wrong?a list includes the possibility of credit problems resurfacing (including US housing, sovereign nations, and state and local governments), commodities price increases causing profit margin pressure, inflation fears, a greater than expected rise in interest rates, undue emerging markets tightening to curb asset bubbles, and currency and capital flow concerns leading to protectionist trade wars.

Additionally, Doll indicated that the magnitude of the market return since the August 2010 lows (US stocks rose over 20% from mid August through the end of the year) means equity markets may have come too far, too quickly. aI do have a concern that the exceptionally strong returns we have seen over the last couple of months may mean that we aborroweda™ some of 2011a™s returns in late 2010,a Doll said.

aThe upside possibilities could lead to stock market appreciation of 10% to 20% more than we expect,a Doll said. aThe downside issues could result in low double-digit percentage loss.a

US Real GDP Hits All Time High in 2011

Doll has been publishing his annual a10 Predictionsa for the year ahead in the financial markets and the economy for over a decade.

In 2011 the ongoing cyclical recovery will continue, Doll believes, but economic growth will continue to proceed at a less-than-normal pace due to the structural problems that continue to face most of the developed world.

In the United States, although the recovery remains subpar, real GDP will move to new all time highs sometime during 2011a™s first half, Doll said. aReal final sales will increase from around 2% to almost 4% as the impact of the government stimulus program and inventory restocking wanes,a he said. aThe good news is that this kind of growth is more sustainable and therefore ahigher quality.a™

aHitting a new high for real GDP also means, of course, that the economy will have moved into a truly expansionary mode,a he said.

In this environment, the Federal Reserve is unlikely to increase interest rates in 2011. aAssuming our growth outlook is correct, the Fed is likely to keep rates at near-zero through the year, although we think ita™s possible that by the end of 2011 the futures curve may begin to price an increase into the markets,a Doll said.

Unemployment Dips to 9 Percent

Job growth also will improve as 2011 progresses, with unemployment falling to around 9% from the current 9.8% rate. aWe believe the removal of the Bush tax cut uncertainties and the fears of a double dip recession as well as improved confidence will lead to more hiring,a Doll said.

The likely employment trend in 2011 is historically associated with solid market performance, Doll said. aCompared with any other time, equity market returns have been most ebullient when unemployment rates have been high and falling,a he said.

Stock On Pace to Outperform Bonds, Cash

As they did in 2010, stocks will outperform both bonds and cash in 2011, Doll said.

aStocks pulled ahead of bonds in 2010a™s fourth quarter, and we expect that trend to continue in 2011,a he said. aInterest rate risk will be to the upside, given accelerating economic and job growth, the revival of business capital investment, the likelihood that bonds inflows will slow, and fading deflation fears.a

Because the recovery remains asub par,a the Federal Reserve will likely remain accommodative, which will probably result in some further steepening of the yield curve, Doll believes. Equities are likely to take over from fixed income as the preferred asset class, both in terms of price appreciation and investor flows.

US Markets Set to Continue Their Dominance

In an outcome that surprised many, the United States was one of the worlda™s strongest markets, and US stocks outperformed the MSCI World Index in 2010a"a trend Doll expects will be maintained in the new year. aStrong balance sheets and free cash flow income statements will likely lead to significant increases in dividends, share buybacks, merger and acquisition activity, and business reinvestment,a he said. aCompanies delivering earnings with solid growth prospects will likely lead the way, as high intra-stock market correlations continue to fall.a

At the same time, differences between developed and emerging markets will be less pronounced in 2011 than before, Doll believes. aThe gap between higher growth rates in the developing world and the lower ones of the developed world will likely shrink somewhat in 2011, causing continued less differentiation in equity returns.a

Predictions for 2011

Here are Dolla™s predictions for 2011.

The 2010 Scorecard

In 2010, risk assets continued the choppy advance they began in 2009. aThe S&P 500 ended the year up a double-digit percentage and close to our 1,250 target, as US stocks outpaced most developed markets and many important emerging markets,a Doll said.

Real GDP growth continued in a positive direction but remained subpar compared with most recoveries. In the United States, jobs growth was not strong enough to reduce the unemployment rate. Inflation remained a non-issue in the developed world but began to rear its ugly head in some emerging economies. Government deficit spending and debt levels continued to haunt investors but corporate financial health remained remarkably strong both in balance sheet and income statement terms. aCorporations produced fantastic earnings gains despite mediocre economic growth,a Doll noted.

aTo sum it up, although we missed on a couple of the predictions made one year ago, most did come to pass,a he said.

Final 2010 Scorecard:

About BlackRock

BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2010, BlackRocka™s AUM was $3.446 trillion. BlackRock offers products that span the risk spectrum to meet clientsa™ 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, as of September 30, 2010, the firm has approximately 8,900 employees in 24 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. For additional information, please visit the Company'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 Chief Equity Strategist for Fundamental Equities, as of January 1, 2011 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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