BlackRock's Doll sees no recession -- and higher S&P

2/06/2008 - 20:40

NEW YORK (Reuters) - The U.S. economy isn't falling into recession, owing to aggressive monetary and fiscal policies, which should bode well for equity prices, said Bob Doll, global chief investment officer of equities at money manager BlackRock Inc .

"A sluggish, but not disastrous, economy should provide a decent backdrop for equities and should allow inflation fears to calm," Doll said in a report on Monday. BlackRock, which manages about $1.1 trillion in assets, is one of the world's largest publicly traded investment management firms.

Doll sees the Standard & Poor's 500 <.SPX>, trading at 1,382 on Monday, to reach between 1,400 and 1,425 by the end of the month, he told Reuters on Monday. For year end, Doll expects the S&P to settle between 1,500 and 1,550.

The upward revision in Gross Domestic Product, while expected, reinforced his view that the economy is growing at a meager but still positive pace. "Time will tell whether this positive growth rate can continue in light of the rapid rise in food and energy prices and the continued decline in home prices," he said.

For now, he's optimistic. "We continue to believe that accommodative monetary and fiscal policies are providing a strong positive offset," Doll said.

Days before the collapse of Bear Stearns in mid-March, Doll saw a greater chance of a U.S. recession.

That all changed, however, with market conditions improving as the Federal Reserve flooded the financial system with cash in the wake of Bear Stearns' near-bankruptcy.

To be sure, the Conference Board's Consumer Confidence Index has dropped to its lowest level in 16 years. Confidence levels have been this low only five times in the last 35 years, and in each of these cases, stocks advanced strongly in the 12 months that followed, for an average gain of 23 percent, Doll noted.

Doll has said he's bullish on the markets because the makings of a traditional recession have not been present. "Recessions typically occur when the excesses of an economic expansion receive a sudden jolt," he said. "The problem with the recession argument this time is that, outside of the credit market, excesses have largely been absent."

Doll said there is no denying the impact that housing and credit issues have had on the current state of affairs, but he doesn't see the crisis sinking the U.S. into recession.

A recession connotes more than just a contraction in GDP. "It also entails patterns of economic behavior such as spikes in unemployment and collapsing profit margins," both of which aren't present today, Doll said.

(Reporting by Jennifer Ablan in New York; Editing by Richard Satran)

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