Europe, in recession , continues to "muddle through" its financial problems, but the debt crisis will ease, according to Robert Doll.
That's one of 10 predictions the BlackRock chief equity strategist made for 2012. He told CNBC Thursday that Europe remains the question mark. "It doesn't solve its problems" but finds "Bandaids to get through," he says.
In the U.S., Doll is predicting the Standard & Poor's 500 at 1350 and gross domestic product(GDP) growth in the U.S. of 2 percent to 2.5 percent. He said the U.S., China, and India combined will contribute two-thirds of the world's GDP growth this year because of their size and because "all three of them are doing a bit better than most other places."
In stocks, he said he will be "very careful to own companies that will have positive and accelerating free cash flow. That gives us degrees of freedom. We want companies to bob and weave as necessary in an environment that’s not all that easy to predict."
That means companies that can raise dividends, buy back stock, make acquisitions, and expand their businesses, he said. The key is having the cash flow to do this, Doll said.
In his coverage universe, Doll's favorite sectors are a defensive sector (health care) and a cyclical one (energy). I'm "focusing on domestically sourced earnings and avoiding European earnings because they’re still falling," he said.
Doll also predicts U.S. earnings will grow "modestly," but will fail to exceed estimates for the first time since the financial crisis. Treasury rates will rise, he believes, and dividends and buybacks will hit a record.
Doll also predicts a Republican sweep of Washington come the November election, with the GOP controlling the Senate, House of Representatives, and the White House.