The latest report from Bob Doll, vice-chairman and CIO for global equities at BlackRock
* The recent rally in stocks has been strongly associated with a sense that the global recession may be moving past its worst points. None of this means that the global economy has bottomed, but it does perhaps indicate that visibility has improved and is likely to continue to improve. We still see a number of risks throughout the economy and are particularly concerned by inadequately capitalized banks and some slow responses by some governments and policymakers; but, on balance, we believe that the world economy should stop contracting in the middle of this year.
* Looking ahead, while interest rates and inflation are likely to rise when the economy recovers from recession, we do not expect inflation to become a significant issue and think it is highly unlikely that interest rates would return to the inflation-driven highs of the 1970s or 1980s.
* We are now at the start of the first-quarter earnings season, and there is near universal agreement that earnings growth will be significantly negative. From a sector perspective, the defensive areas of healthcare, consumer staples and utilities should be down in the single digits, with larger declines coming from financials, technology, telecom and industrials. The worst-performing earnings results are likely to be seen among the consumer discretionary, materials and energy sectors. The market response to earnings reports should help provide a clue as to whether the current rally will be extended.
* Looking ahead, we expect volatility will persist and it would be premature to suggest that we will not encounter additional selling squalls in the months ahead. Nevertheless, our overall view is that while markets are certainly not out of the woods, equities should continue to move higher over the course of the year.
