In this week’s Weekly Investment Commentary entitled ‘Are We Near the End of the Correction?‘ BlackRock’s Chief Equity Strategist for Fundamental Equities, Bob Doll, worries about debt contagion, but sees the US recovery as stable.Of course, Greece is capturing most of the headlines, but perhaps more worrisome is the debt contagion that appears to be spreading to other countries such as Spain and Italy.
He notes that the contagion is not as widespreading as it was last year, and sees the more sound position of the global financial system and economic indicators as reasons for the slower rate of contagion. Doll thinks the value of the euro will sink due to the Eurozone lowering monetary policy, and he feels that the ECB will have to purchase more bonds to improve market liquidity.
Even with the tremendous issues and concerns in Europe, Doll still sees strength in US stocks.
Despite the mounting crisis in the eurozone, the US economic recovery continues to look stable. Retail sales growth has slowed recently, but we expect the decline in oil prices could help reverse that trend and provide a boost to consumption. Additionally, business spending remains solid and we are seeing a pickup in residential construction.
While it is true that US stocks have taken a turn for the worse over the last month, other markets (particularly European stocks) have been hurt even more. On a year-to-date basis, European stocks are down roughly 3%, while US stocks are still up close to 6%.
Although Doll sees strengths in the US economy and in businesses, the ‘crosscurrents’ such as macro risks will continue to cause similar volatility in stocks that we have seen over the past number of weeks. All Doll sees preventing a break out in US stocks is some type of positive jolt.