After a tough four weeks in the market and some tough numbers, what’s coming next? This week, Bob Doll of BlackRock, David Kelly of JP Morgan and others chime in.

THE BULL HAS FURTHER TO RUN, From Bob Doll, global chief investment officer of equities, BlackRock

The rally that began in March allowed equities to appreciate by roughly 40%, so it should not come as too much of a surprise to see stocks pause. At their levels in March, stocks were pricing in a probability of a depression, and now we believe they are reflecting the reality of a recession. Policymakers around the world have engaged in widespread stimulus measures, which we believe have helped forestall a wider financial crisis. Whether these measures will translate into a more lasting and sustainable recovery remains to be seen. There are a number of factors that will need to be overcome, including anemic levels of consumer spending and a banking system that is still not functioning normally. On balance, we believe that although a number of risks remain, we should see a recovery unfold over the next several months.

After three months of a nearly uninterrupted rally, stocks appear to have entered a consolidation phase. Equity markets have seen their gains trimmed, mostly as a result of profit taking and portfolio rebalancing, and not from a change in the economic outlook. The recent setback in stocks (which has caused a correction of about 8% over the last four weeks) has the possibility of sparking some renewed bearishness among investors. There are many who were skeptical of the rally in the first place and there have also been many investors who have remained on the sidelines. To be sure, there are downside risks to the market, one of which can be found in the earnings landscape. Earnings expectations have been raised significantly over the past several months, and meeting those expectations could prove difficult in the current environment, which has the potential to result in disappointments.

In our opinion, however, the cyclical bull market that began in March has further to run. We do not believe that stocks have fully discounted the possibility of an economic recovery, which means that more upside to the stock market should be possible. As a result, we expect stock prices will be higher by the end of the year than where they are today. Our downside target for stocks remains between 800 and 850 for the S&P, and we believe this range represents an attractive entry point for those investors looking to put cash to work.


AN ACTION-PACKED WEEK OF DATA From David Kelly, Chief Market Strategist, JP Morgan Funds
The week ahead will be action-packed with interesting though distorted economic numbers. Wholesale and consumer prices will both be boosted by a mammoth 16% surge in gasoline prices between May and June—the biggest one-month increase seen since Hurricane Katrina roared ashore in the summer of 2005. This will also boost nominal retail sales figures—excluding this effect, both inflation and retail activity were weak in June.
 
Industrial production likely fell for the 17th month in the last 18 in June, partly reflecting continued extremely low levels of auto production, down roughly 50% from a year ago. However, auto analysts are predicting a significant pickup in production in the third quarter as GM and Chrysler emerge from bankruptcy and sales strengthen, partly reflecting the cash-for-clunkers scheme.
 
In addition, layoffs in the auto industry caused by the temporary shutdowns at GM and Chrysler facilities boosted unemployment claims this spring but are actually lowering them now, as workers who would normally have filed initial claims for benefits over the summer filed them earlier. This pushed initial claims below 600,000 for the first time in 23 weeks last week and this should be extended into this week.
 
More broadly, on the employment picture, of the 6.5 million jobs lost in this recession so far 20% have been in construction and 30% have been in manufacturing, even though these two sectors combined account for just 14% of payroll employment.  f, as in the rest of the world, manufacturing production begins to rebound this summer and housing starts continue to climb, overall payroll job losses should begin to retreat significantly over the next few months.
 
The earnings season gets going in earnest this week with reports due out from 31 S&P500 companies including Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup. Throughout the earnings season, the emphasis will be on “earnings visibility” – that is, what the firms see for themselves later on in the year and in 2010. In truth, however, companies will have no better idea of the macro environment than economists.