US
stocks will record a third straight year of double digit percentage returns in
2011, the first time this has occurred in more than a decade, according to
Robert Doll, chief equity strategist for fundamental equities at
BlackRock.

In 2011
risk assets in general and equities in particular will draw strength from
continued improvement in US economic growth—in particular, a more sustainable
growth path—coupled with improved business and consumer confidence, and a less
hostile capital markets attitude in Washington, DC, according to Doll.

“By
the close of 2011, the S&P 500 Index will be at 1,350-plus, a target that
implies that the market will appreciate at least in line with corporate earnings,”
Doll said. The S&P 500 Index closed out 2010 at 1,257, rising over 15 per
cent for the year.

“Our
expected gains for the equity markets for 2011 are not much different from what
we expected for 2010,” Doll said. “What’s different for 2011 is that market
risk will be more to the upside than was the case in 2010.”

The
possible upside factors include an acceleration in jobs gains, a surprise in
real GDP, earnings exceeding expectations as occurred in 2010 and Washington DC
beginning to address the nation’s fundamental debt and budget problems.

On
the other hand, Doll’s “what can go wrong?” list includes the possibility of
credit problems resurfacing (including US housing, sovereign nations, and state
and local governments), commodities price increases causing profit margin
pressure, inflation fears, a greater than expected rise in interest rates,
undue emerging markets tightening to curb asset bubbles, and currency and
capital flow concerns leading to protectionist trade wars.

Doll
indicated that the magnitude of the market return since the August 2010 lows
(US stocks rose over 20 per cent from mid August through the end of the year)
means equity markets may have come too far, too quickly. “I do have a concern
that the exceptionally strong returns we have seen over the last couple of
months may mean that we ‘borrowed’ some of 2011’s returns in late 2010.”

“The
upside possibilities could lead to stock market appreciation of 10 per cent to
20 per cent more than we expect,” Doll said. “The downside issues could result
in low double-digit percentage loss.”

Doll
has been publishing his annual “10 Predictions” for the year ahead in the
financial markets and the economy for over a decade.

Here
are Doll’s predictions for 2011:

-US
growth accelerates as US Real GDP reaches a new all time high.

 -The US economy creates two to three
million jobs in 2011 as unemployment falls to 9 per cent.

 -US stocks experience a third year of
double-digit percentage returns for the first time in over a decade as earnings
reach a new all time high.

-Stocks
outperform bonds and cash.

 -The US stock market outperforms the
MSCI World Index.

 -The US, Germany and Brazil outperform
Japan, Spain and China.

 -Commodities and emerging market
currencies outperform a basket of the dollar, euro and yen.

 -Strong balance sheets and free cash
flow lead to significant increases in dividends, share buybacks, mergers and
acquisitions and business reinvestment.

 -Investor flows move from bond funds to
equity funds.

 -The 2012 Presidential campaign sees a
plethora of Republican candidates while President Obama continues to move to
the center.