Tags: Doll | earnings | bull | market

Nuveen's Doll: Earnings Will Be 'Hit or Miss'

Monday, 15 Jul 2013 12:01 PM

By John Morgan

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The stock market is on idle after fresh highs atop a recent correction, but will need improved earnings in the gas tank to keep going up, according to Bob Doll, chief equity strategist at Nuveen Asset Management.

The Standard & Poor's 500 reached a new closing high of 1,680 on Friday, and Doll told CNBC he expects the market will now need to digest those gains.

"The Fed is nearly done giving us 16 cylinders of help ... which means the P/E [price-earnings] phase of the bull market is about over. For the market to go significantly higher, we need to have better earnings."

Editor's Note:
The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

Doll said he was surprised stocks have gained as much as they have recently. He expects second-quarter earnings to be similar to those in the first quarter, with most companies exceeding lowered expectations.

"It's going to be hit or miss," he predicted. "My guess is there will be some disappointments because of foreign currency translations. That will hurt revenues a little bit."

Doll explained he will be following what companies say about their capital expenditure plans, which could provide insight into future growth.

The swing upward in 10-year Treasury yields to a recent high of 2.75 percent spooked stocks, but Doll noted the increase in rates has not really been harmful.

"I see them [rates] slowly drifting higher. In the near run, Treasurys are a bit oversold, so maybe we have a bit of a rally. The next noticeable move will be slowly higher. The economy is healing. The world didn't end."

A bit more inflation could help companies raise prices and boost their results, The Wall Street Journal reported. But as earnings season gets into higher gear this week, The Journal said, it is possible that U.S. corporate year-over-year revenue will be nearly flat for the third year in a row.

Nicholas Colas, chief market strategist at ConvergEx Group, called it a "revenue recession."

Since the bull market began in March 2009, inflation has risen at a compound annual rate of only 2.14 percent — about 1.5 percent below its average of the past 65 years.

Alvin Tan, an FX strategist at Societe Generale, told Reuters, "U.S. equities have not really been ruffled by the rise in bond yields. The S&P 500 has been one of the top performers in the world so basically it is a story of U.S. recovery, and the rise in Treasury yields and U.S. equities is consistent with that."

Editor's Note: The ‘Unthinkable’ Could Happen — Wall Street Journal. Prepare for Meltdown

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