Doll Cautiously Optimistic

Bob Doll says that while the economic recovery has been tepid, he doesn’t think another recession is coming, and he sees things improving in the coming months.

“While we remain convinced that the economy is in a recovery mode, it is important to remember that recoveries that occur in the aftermath of financial crises tend to be bumpy and slow and the current recovery is no exception,” Doll says in his latest market commentary on BlackRock’s web site. In a normal recovery, he says, GDP growth would have averaged about 6% over the past two years; in reality, it has been less than half of that. In addition, he says first-half 2011 growth looks like it will come in at less than 2%. And, “Since 1960, every time year-over-year growth has fallen below 2%, the United States has entered into a recession.”

Doll says, however, that he doesn’t expect another recession, and he sees a number of positives: declines in oil and gas prices, the waning of the effects from the Japanese tragedy, and slow recovery in the labor market, to name a few. He expects manufacturing data, unemployment data, work week length, and bank lending will all improve in the coming months. He also says he expects the Federal Reserve to start raising interest rates sometime in mid-2012.

All of this has Doll cautiously optimistic on stocks. “Our bottom line view is that investors should maintain a reasonably constructive bias on risk assets, but should also be prepared to scale back exposure if evidence of economic growth acceleration does not materialize,” he says.