Predictions for 2009: BlackRock’s Bob Doll Predicts Equities Will Advance by Double Digits but Remain Highly Volatile in ’09, as Recession’s Impact Lingers

NEW YORK--(BUSINESS WIRE)--Equities will remain highly volatile but achieve a double digit percentage gain for 2009 overall, with the support of increasingly attractive valuations and massive sideline cash, according to Robert C. Doll, Vice Chairman and Chief Investment Officer of Global Equities at BlackRock, Inc. (NYSE: BLK).

“These actions are aimed at averting a banking system collapse, containing economic contraction, sustaining credit flows to quality borrowers, facilitating the restructuring or failure of weak borrowers, and arresting the decline in money velocity.”

At the same time, Doll said, 2009 will be marked by negative economic growth and significant earnings declines, with the United States remaining in the grip of what will likely be the longest and deepest recession of the post World War II period. In the US, the economy will face its first nominal GDP decline in 50 years, while global growth will fall to its lowest rate in nearly 20 years.

Economy Begins to Stabilize in ‘09’s Second Half

The massive, unprecedented fiscal and monetary stimulus launched in the US and globally will yield the beginnings of economic stabilization in the United States in 2009’s second half and in Europe by the start of 2010, Doll believes. “When recovery finally comes, it is likely to be muted, as deleveraging on the part of the consumer and the financial sector will take many years,” he said.

In 2009, investors will begin a slow return to “risky” assets versus “safe assets,” Doll said.

“Volatility levels are likely to recede from the records set in 2008, but 2009 will continue to be a highly volatile year,” he said. “We should see multiple double-digit percentage rallies as well as declines all throughout the year.

“The new year begins with high uncertainty, low expectations and significant problems,” Doll said. “Nevertheless, if our analysis proves out, 2009 will be a year when reflation and liquidity begin to beat credit woes and fear.”

Doll has been publishing his annual “Ten Predictions” for the year ahead in the financial markets and the economy for over a decade. For 2009, Doll has issued 12 predictions, to better reflect the full spectrum of key economic and financial issues and themes that will shape investment market performance over the coming year.

Earnings Rebound in ’10 Preceded by Stock Rally

Doll believes that an equity market bottoming process began on October 10, a process further confirmed by a secondary market low on November 21. “With record fiscal and monetary stimulus, substantially lower oil prices, much cheaper valuations, and lots of cash on the sidelines, it’s likely that stocks will rally in 2009,” he said. “We believe an earnings rebound is likely in 2010, the signs of which will become evident in 2009. Under this scenario, we believe a year-end S&P target of 1000 to 1050 would be reasonable.”

The US will outperform Europe, and emerging markets will outperform developed ones during 2009, Doll said. “Europe has been slower than the US to recognize its economic problems, as shown by its still higher interest rates and a slower clean up process across the banking system,” he said.

Corporate Earnings Weakest Since 1930s

Economic growth will be negative for at least 2009’s first half, Doll said, and close to zero in the second half of the year.

Doll also believes that corporate earnings, which fell by a double-digit percentage in 2008, will likely fall by double digits again in 2009 – marking the first back-to-back such declines in earnings since the early 1930s.

Declines in asset values across the board and poor real growth all point to very low inflation rates in 2009, with inflation for the full year likely to fall to approximately zero in the developed world and below 5 percent in the developing world, Doll said.

“We believe that aggressive monetary and fiscal stimulus initiatives will eventually prove successful in preventing a widespread decline in prices,” he said. “These actions are aimed at averting a banking system collapse, containing economic contraction, sustaining credit flows to quality borrowers, facilitating the restructuring or failure of weak borrowers, and arresting the decline in money velocity.”

A rapidly growing federal budget deficit will be a consequence of record federal fiscal stimulus initiatives. “We expect the federal budget deficit will cross the $1 trillion threshold both through massive spending programs and reduced tax receipts resulting from the recession,” Doll said. “The budget deficit will limit the Obama administration’s ability to deliver on its promised campaign initiatives – and will eventually lead to massive tax increases.”

Healthcare, Information Tech, Energy Favored in ’09; Commodity Prices Will Rebound

The tension between debt-induced deflation and policy-induced reflation will sustain high market volatility during 2009, continuing the trend that marked both equity and commodity price trends in 2008, Doll said.

Doll said that investors would be well advised to focus on companies with balance sheet strength, good cash flow characteristics, and some independence from the economic cycle. Doll’s favored sectors include healthcare, information technology, and energy, while he maintains a cautious view of financials, utilities and materials.

Most commodities extended multi-year gains into 2008, peaked, and then experienced vicious declines, Doll said. “While the peaks were overdone on the upside, current levels may have overdone it on the downside,” he said. “As the global economy begins to stabilize, we expect commodity prices will find a bottom and begin to move higher.”

In particular, Doll said, stable prices for oil are in the range of $60 to $80 per barrel, compared with the $40 range reached at year end.

Corporate/Muni Bond Spreads Over Treasuries Will Narrow

As fear levels recede and confidence is slowly rebuilt in ’09, the yield spread for corporate, high yield and municipal bonds over Treasuries should begin to narrow from the current very wide levels, Doll said.

“Current spreads are implying catastrophic results in terms of failures and bankruptcies,” he said. “While there are undoubtedly more bankruptcies to come, our view is that current spreads have overly discounted the risks, or that liquidity problems are contributing to the wide spreads.”

Predictions for 2009

Here are Doll’s predictions for 2009.

1.	The US economy faces its first nominal GDP decline in 50 years.
2.	Global growth falls below 2% for the first time since 1991.
3.	Inflation falls close to zero in many developed countries, but widespread deflation is avoided.
4.	The US Treasury curve ends 2009 higher and steeper than where it began.
5.	Earnings fall by a double-digit percentage again in 2009, the first back-to-back drop since the 1930s.
6.	High yield, municipal and investment grade corporate bond spreads narrow in 2009.
7.	US stocks record a double-digit percentage gain in 2009.
8.	US stocks outperform European stocks while emerging markets outperform developed ones.
9.	Energy, healthcare and information technology outperform utilities, financials and materials.
10.	Stock market volatility remains elevated as periodic double-digit percentage rallies and declines occur.
11.	Oil and other commodities bottom and move higher by year-end as emerging market economies begin to recover.
12.	The US federal budget deficit soars past $1 trillion as the government continues to grow.

The Scorecard for 2008

Doll also provided a recap of his “10 Predictions” for 2008, along with a “score” for each prediction.

“2008 turned out to be a year investors would like to forget, but instead will vividly remember,” Doll said. “It was obviously a difficult year for investors, and we -- along with almost all other observers -- were surprised by the degree to which the economy and the markets soured. Nevertheless, in a difficult environment for any sort of predictions, our beginning-of-year forecasts held up reasonably well.”

1.	World growth dips below trend for the first time since 2002.
	Score = Correct
2.	The United States narrowly escapes an economic recession, but experiences a profits recession.
	Score = Half-Correct
3.	The fed funds rate falls to 3.5% or lower as Treasury bond yields rise.
	Score = Half-Correct
4.	The dollar rises against the euro, but falls against developing market currencies.
	Score = Half-Correct
5.	Stocks achieve a new all-time high in 2008 as price/earnings ratios improve.
	Score = Incorrect
6.	Large cap and growth outperform small cap and value.
	Score = Half-Correct
7.	Developing economies and equity markets outperform developed ones yet again.
	Score = Half Correct
8.	Despite rising above $100 per barrel, oil prices end the year lower than where they started.
	Score = Correct
9.	Information technology, healthcare and energy outperform utilities, financials and consumer discretionary.
	Score = Correct
10.	Democrats capture the White House and increase their lead in the Senate, House and governors’ mansions for the first time since 1992.
	Score = Correct

Final 2008 Scorecard:
		Correct:	4
		Half-Correct:	5
		Incorrect:	1
		Total:	6.5/10

About BlackRock

BlackRock is one of the world’s largest publicly traded investment management firms. At September 30, 2008, BlackRock’s assets under management were $1.259 trillion. The firm manages assets on behalf of institutions and individuals worldwide through a variety of equity, fixed income, cash management and alternative investment products. In addition, a growing number of institutional investors use BlackRock Solutions^® investment system, risk management and financial advisory services. The firm is headquartered in New York City and has employees in 22 countries throughout the US, Europe and Asia Pacific. For additional information, please visit the firm'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 Equities as of January 1, 2009 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 presentation. 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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