Merrill's Doll Sees Stocks 'Muddling Through'
At this time every year, Robert Doll, president and chief investment officer at Merrill Lynch Investment Managers, gazes into his crystal ball and tells investors what the future is likely to hold. For 2005, the forecast isn't particularly inspiring.
In fact, Doll is calling for economic growth to slow, earnings to miss expectations, interest rates and commodity prices to rise, and equity returns to be barely positive.
"We think it will be a 'muddling through' sort of year," he said Tuesday morning at a press conference in lower Manhattan.
"With earnings slowing this year, so will returns -- not to mention the fact that the fourth-quarter rally may have borrowed from the returns for 2005," he said, further noting valuations are relatively high, with the S&P 500 trading at 20 times earnings in 2004 compared to its historical average of 16.In his annual investment outlook, Doll said real gross domestic product growth in the U.S. should slow to less than 3.5%, as consumer spending softens and capital spending takes a hit from high energy costs, rising interest rates and lower productivity. Doll thinks consumer spending will rise between 2.7% and 3% this year from a 3.7% pace in 2004, citing an end to fiscal and monetary stimulus. He expects business spending to climb 5% to 8% vs. more than 10% last year. The global economy is also projected to slow down, with Europe lagging and China continuing to lead the pack, and GDP growth is expected to be around 7%. Doll believes that inflation will continue to creep up in 2005, thanks to a weaker dollar, high oil prices and rising labor costs. As a result, he said, the Federal Reserve will "show no sign of slowing its campaign of measured one-quarter-point rate hikes." The funds rate should end the year at 3.5% from 2.25% currently and the 10-year note will likely end the year at 5%, he said.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV