Weekly Review and Outlook

Here is the weekly review by Bob Doll is Vice Chairman and Global Chief Investment Officer of Equities at BlackRock Investments. I read alot of summaries, this one captures all the major market highlights and I agree with his insights. Happy Reading!

The Financial Pragmatist,
Libby Mihalka

Blackrock Commentary
Disappointing retail sales figures, ongoing problems in the subprime mortgage
market and higher inflation numbers all pushed stock prices lower last week, with the Dow Jones Industrial Average falling 1.4% to 12,110, the S&P 500® Index declining 1.1% to 1,387 and the Nasdaq® Composite dropping 0.6% to 2,373. After last week’s declines, stocks are down just over 2% for the year and are about 4% lower than their highs for the year.

The corporate earnings picture has changed somewhat over the past few weeks. From the second half of last year through early February, consensus expectations for 2007 earnings growth hovered just over the 10% mark, but then began falling. Expectations have since stabilized at around the 6.5% mark, close to where we forecasted they would be at the beginning of the year — certainly lower than in previous years, but still at a positive level.

The idea that the economy is slowing is not the debate these days, given problems in the housing market (and the associated financing issues), slowing manufacturing activity, declining retail sales and some evidence of a weakening labor market. The question facing investors now is: Does the slowdown represent a transition from a few years of above-trend growth to a period of more sustainable, but slower growth, or does the slowdown indicate that a recession is on the horizon?

Concerns over the subprime lending business have highlighted the possibility of an economic recession. Up until now, problems in the housing market have been relatively confined, and the residential real estate slowdown has not had a significant impact on the overall economy. Many observers, however, are worried that tightening lending standards could make it more difficult for the housing market to recover, potentially triggering additional credit problems and resulting in a recession. In our opinion, this outcome is unlikely. Despite all of the problems
in the housing sector, consumer spending levels have remained reasonably strong, corporate balance sheets are still in good shape and non-U.S. economies (particularly developing economies) also are quite strong. We believe that these positive factors will outweigh the negatives and that the U.S. economy will avoid a recession, although we believe a “growth scare” could still rattle the financial markets. The Federal Reserve will be meeting later this week, and we expect that the central bankers will begin adopting a more dovish tone given increased signs
of economic weakness. The Fed remains concerned about inflation, but in our opinion, inflationary fears are easing. We believe the Fed will enact an interest rate cut before the end of the year, which would help support equity markets.

Against this backdrop, we continue to believe that the long-term outlook for stocks remains good. Although we recognize that a number of risks remain, and we retain our view that short-term market action is likely to remain choppy, we do not believe that the bull market we have been experiencing since late 2002 is set to end anytime soon.