Is Bear market in 'terminal stages'

SAN FRANCISCO Oct. 10, 2008 -- You'd have to go back to the 1930s to find a worse week for U.S. stocks than this one, so why is one investment strategist breathing a bit easier?

"I think we are in the terminal stages of the decline," said Bob Doll, global chief investment officer of equities for asset management giant BlackRock Inc. "There's a pretty high chance that the low we saw [Friday 10 Oct 2008] morning was an important bottom."

The Dow Jones Industrial Average rebounded from Friday's 10 Oct 2008 intraday low of 7,882 to close at 8,451, but the Dow still lost 18% for the week -- the biggest weekly decline in the benchmark's 112-year history.

"You have some chaotic moves in the market," Doll said. "That's part of what you look for in a capitulation."

The U.S. market appears oversold, he added. "More and more names have become interesting from a valuation standpoint, and the market is also interesting on valuation."

Doll noted that the dividend yield on the Standard & Poor's 500 Index is above 3%, not far from the yield on a 10-year Treasury bond. So S&P 500 index investors are getting almost as much as they would in a risk-free investment, plus capital appreciation potential.

Still, Doll said it's too early to embrace stocks wholeheartedly. The sell-off is advanced, he noted, but it's not over.

"When credit markets lock up people get scared, and when markets go down out of fear it's not an analyzable situation. The selling just has to exhaust itself," Doll said.
In a separate research note to clients late Friday 10 Oct 2008, Doll and his fixed-income counterpart Peter Fisher put a finer point on the current situation.

"The best advice we can give to investors is to remain cautious for a while longer," Doll and Fisher wrote. "We recommend investors focus on capital preservation for the time being, even at the cost of missing some near-term gains in higher-risk assets.

"We believe we will see evidence that the credit markets are starting to recover," they added, "but this is likely to be a mid-2009 event rather than a fourth-quarter 2008 occurrence."