Market Drawdown Presents Buying Opportunities

Tuesday, April 17th, 2012

Market Drawdown Presents Buying Opportunities

by Bob Doll, Chief Equity Strategist, Fundamental Equities, BlackRock

April 16, 2012

Another Downturn for Stocks

Once again, risk assets struggled last week with most investors blaming the downturn on re-ignition of concerns over the European debt crisis brought about by a disappointing debt auction in Spain. For the week, the Dow Jones Industrial Average fell 1.6% to 12,849, the S&P 500 Index declined 2.0% to 1,370 and the Nasdaq Composite dropped 2.3% to 3,011.

Does History Repeat? Or Just Rhyme?

Last year around this time, stocks were coming off an impressive first quarter, but were headed for trouble. Higher oil prices, the earthquake in Japan and the brouhaha over the US debt ceiling all conspired to cause a sharp turnaround in risk assets. So far this year, stocks have been following a somewhat similar pattern as early strength for equities appears to be fading somewhat. So, it is worth asking the question: Will 2012 look like 2011?

There are some aspects of the financial and economic backdrop that do look similar between the two years. In addition to the flare ups in Europe regarding debt problems, we are currently in the midst of a period of rising energy prices. Gasoline prices in particular are getting close to last year’s peaks. We are also seeing some renewed weakness in the economic data—the pace of jobs growth slowed in March and consumer confidence levels have been looking softer. Should gasoline prices continue to rise, it would be reasonable to fear that the spillover effect onto the rest of the economy would worsen.

We believe it would be a mistake, however, to look too closely to 2011 as a model for what might happen this year. For starters, current expectations for both the economy and the markets are worse than they were at this point last year. In early 2011, investors were pricing in a better economic environment than what would ultimately come to pass. In contrast, at this point we believe that markets are already priced for relatively modest levels of growth, suggesting that there is less room for downside disappointments. Additionally, the fundamental strength of the economy is better now than it was one year ago. Notwithstanding last month’s data, the labor market is stronger than it was, housing appears to be bottoming and US credit conditions have been improving. Finally, it is important to remember that the recovery and market strength last year were, to some extent, derailed by the natural disasters in Japan and by S&P’s credit downgrade of the United States. While external shocks are always a risk, we can hope that these sorts of factors will not be repeated.

Reasons for Optimism

Given the relative differences between the economy in 2011 and what it looks like today, we believe the US economy will be more resilient than it was last year, providing some support for US equities.

In addition to the economic backdrop, we would also look to corporate earnings as a source of strength. Although we are forecasting that the pace of earnings growth will be slower this year than it has been in the recent past, so far the data has shown that corporate earnings have been doing just fine. Expectations for the first quarter have been set relatively low, but so far over 80% of the companies that have reported have surpassed expectations, which is a good sign. (In comparison, in the previous several quarters around 60% to 70% of companies beat expectations.)

Putting all of this together, we would argue that we are unlikely to see the sort of sharp and severe pullback in stock prices that we witnessed in 2011. We do, however, expect to see higher levels of volatility in the months ahead compared to what we experienced in the first quarter and we would not be surprised to see the current pullback take the markets down to around the 1,350 or 1,300 level for the S&P 500. Such a pullback would represent a normal correction occurring in the midst of a bull market. Furthermore, we also believe that stocks should see a resumption of gains after the current period of weakness, which could create buying opportunities for investors.

Tags: Bob Doll, Brouhaha, Confidence Levels, Consumer Confidence, Debt Ceiling, Debt Crisis, Debt Problems, Dow Jones, Dow Jones Industrial, Dow Jones Industrial Average, Drawdown, Earthquake In Japan, Economic Backdrop, Economic Data, Energy Prices, Flare Ups, Gasoline Prices, Nasdaq Composite, Rising Energy, Spillover Effect
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20 Things to Stop Doing to Others, and other Weekend Reads

Friday, July 29th, 2011

Here are this weekend’s reading diversions for your personal enlightement. Have a terrific long (Civic Holiday) weekend!

Margaret Cochran, Ph.D.: The Enneagram: A Guide to Understanding Yourself and The People Around You

It is important to understand, as you explore this system, that we each possess all of the nine types of Enneagram energy within us. However, there is one “home point” in which we spend the majority of our “psychological time.”

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Eating Meat Linked To Disease, Report Says

“If you focus on filling up on fruits and veggies, so they’re at least half your plate, you’re not going to have a lot of room left to even eat all that meat,” said Joan Salge Blake, R.D., a spokesperson for the American Dietetic Association. “The biggest thing is just getting down the amount we eat.”

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Study Suggests That Onion Skin Manipulation Could Produce A New ‘Superfood’

The fruits and vegetables that have been dubbed “superfoods” over the past few years have a few things in common. They’re almost all dark-colored. Many of them are strong-tasting, either bitter or sweet. More than a few have been berries (blueberries, cranberries, goji berries, açai berries) and green leafy vegetables (kale, collard greens, spirulina, wheatgrass). Onion skins are none of these things. They are papery, beige and gross.

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How to Prevent Crohn’s Disease | eHow.com

There is currently no medically documented way to prevent Crohn’s disease. However, you may be able to reduce the likelihood of developing Crohn’s disease through your lifestyle and diet. Here are some tips to help you lessen your chances of developing Crohn’s disease.

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Prednisone Vs. Diet to Treat Crohn’s Disease Flare-Ups | eHow.com

Although prednisone can be successful in bringing about remission, according to the University of Maryland Medical Center, it has numerous side effects including infection, metabolic bone disease, hypertension, diabetes, glaucoma and cataracts. If your condition requires a high-dose regimen of this medication, your doctor may suggest alternative procedures that eliminate these risks.

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Is It Safe To Pee In The Pool … And Other Water Safety Questions

But while swimming can certainly be a healthy pastime, allowing you to burn calories while staying cool outdoors, the number of recreational water illnesses (RWIs) has been on the rise over the past few years, according to the Water Quality And Health Council. And though we rightfully tend to worry about taking precautions against sunburn and drowning accidents, it’s also important to keep an eye out for pool water safety.

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Have Rheumatoid Arthritis? 10 Ways To Protect Your Heart

If you have rheumatoid arthritis (RA), you also have double the risk for heart disease and heart attack.

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Leo Galland, M.D.: Slimming Strawberries For Weight Loss

Peak strawberry season is just around the corner, so now is the perfect time to add strawberries to your menu for summer weight loss. From farm stands to your local supermarket, these luscious berries are sure to turn up just about everywhere.

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20 Things to Stop Doing to Others

There is one key factor that can either damage your relationships or deepen them. That factor is your attitude. If you’re hoping to grow and maintain positive relationships in your life, read on. Below you will find a 20 step attitude adjustment guaranteed to help you do just that.

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Ten Healthiest Foods For Under $1 | Food & Drink | Living Frugally | LearnVest – Where life gets richer

Fresh fruits, vegetables and whole grains are vital components to any healthy diet. Fortunately, many of these nutritious foods can often be found in your local supermarket for less than a dollar, though prices vary depending on the season as well as where you live

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The Health Risks You Face after Forty – Menopause

Introducing you to health risks is not saying that turning forty somehow signals an onslaught of diseases and disabilities. Many women are healthier than they’ve ever been as they approach midlife. But a well-thought-out approach to health maintenance is smart at any age, and it becomes more important as each year passes. Don’t think of your health care efforts as part of entering old age; think of them as a simple, basic plan to preserve and extend your energy and quality of life.

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Crohn’s Disease FAQ

The cause of Crohn’s disease is unknown. Some scientists suspect that infection by certain bacteria, such as strains of mycobacterium, may be the cause of Crohn’s disease. To date, there has been no convincing evidence that the disease is caused by infection. Crohn’s disease is not contagious. Although diet may affect the symptoms in patients with Crohn’s disease, it appears unlikely that diet is responsible for the onset of the disease

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Crohn’s disease: Lifestyle and home remedies – MayoClinic.com

Avoid problem foods. Eliminate any other foods that seem to make your signs and symptoms worse. These may include “gassy” foods such as beans, cabbage and broccoli, raw fruit juices and fruits — especially citrus fruits, spicy food, popcorn, alcohol, and foods and drinks that contain caffeine, such as chocolate and soda.

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10 quick and healthy snacks to stash at work | Healthy Eating | Eat Well | Best Health

Keep these 10 snack options in your desk drawer or office fridge for quick, healthy alternatives to vending machine fare

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Depression Around The World: How Do Countries Stack Up?

So what’s causing this cross-national divide in depression levels? The study’s researchers speculate that one reason could be the sharp income inequality in wealthy nations. Any other possible reason is the low level of awareness about mental illness in poorer countries. Or, say the researchers, it could be perhaps just be that depression is an illness of affluence.

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20 Tips for Weight Loss This Summer

If you’d like to lose 10 pounds or more this summer, check out these 20 tips. Three nutrition experts share their best advice on losing weight this summer and keeping it off for good.

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Tags: American Dietetic Association, Civic Holiday Weekend, Crohn S Disease, Eating Meat, Enlightement, Enneagram, Flare Ups, Fruits And Vegetables, Fruits And Veggies, Goji Berries, Green Leafy Vegetables, Joan Salge Blake, Margaret Cochran, Maryland Medical Center, Metabolic Bone Disease, Onion Skin, Onion Skins, Psychological Time, Superfood, University Of Maryland Medical Center
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