BlackRock CIO Bob Doll believes the US rally is gradually maturing into a more fundamental recovery following the best two consecutive weeks for the equity markets in nearly a decade.
With earnings expectations rising on a better-than-expected Q2 results season, the Dow Jones is in positive territory year-to-date, while the S&P is up almost 10% and the Nasdaq has climbed 25%.
“The number of new highs last week was 175, while the number of lows was only 9. We have not seen this for quite some time,” Doll says.
“Maybe even more important than this, though, is the character of the rally.
"While the rally from early March to early May was about low-quality names and weak companies surviving, the last two weeks have been more fundamentally oriented, focusing on blue chip, high-quality names.”
Although Doll is wary the market upswing of almost 50% over the past five months could lead to higher interest rates and taxes, he believes improving economic data will continue to fuel the rally.
“The upside surprises in earnings are accompanied by better-than-expected economic activity," Doll says.
"US leading indicators were up 0.7%, consumer confidence increased another point, mortgage applications for purchase increased more than 1% and China showed strong growth.
“The rally witnessed over the last two weeks could, in fact, imply that the market is getting ahead of itself and discounting a profit rebound, but we believe the underlying cyclical rally ultimately will be durable.”
