"Markets tend to have indigestion when there's change," Doll said. "The Fed is nearly done giving us 16 cylinders of help…which means the P/E phase of the bull market is about over. For the market to go significantly higher, we need to have better earnings."
Doll said the market recently has surpassed his expectations. "In the short-run, I'm surprised we moved up as much as we have so I think we'll take a bit more of a pause. I think we've seen the lows for the correction, but substantial new highs will take better earnings, and we're not there yet. I think the consolidation period continues."
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As dozens of earnings reports start to roll in this week, he expects the second quarter to be much like the first quarter, with the majority of companies beating lowered expectations. "When earnings are in the basement, it's not hard to beat them," he said. "It's going to be hit or miss. My guess is there will be some disappointments because of foreign currency translation. That will hurt revenues a little bit."
He expects low single-digit earnings growth this quarter ,but that could move up to mid- to high-single digits in the third and fourth quarter when comparisons with last year will be easier. Doll said he is watching to see what companies say about capital expenditures, which will be telling about future quarters.
Doll is most bothered about the lack of growth, which he says needs to kick in soon to keep the market going. If it doesn't, "we'll be back in the pea soup again," he said.
"If you look at labor for the whole quarter, we've added more jobs in the last three months than we have in while. Its' nothing to write home about. At least we're having some growth."
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The Fed is likely to move when the economy shows improvement, and if that's the case, it should be good for stocks, Doll said. Since the Fed has been talking about tapering back its bond purchases, yields have risen, with the 10-year at 2.59 percent late Friday. Stocks have been jumpy as rates rose off a low of 1.61 percent in early May, to a recent high of 2.75 percent.
"Am I concerned about 2.5 percent 10-year Treasury yields? Absolutely not," he said. "Behind it all is a message that we've gotten from the bond market. We've gotten from the Fed, the maximum help, but from here it's going to get less good. I see them [rates] slowly drifting higher. In the near run, Treasurys are a bit oversold, so maybe we have a bit of a rally. The next noticeable move will be slowly higher. The economy is healing. The world didn't end, and a one handle on the 10-year Treasury, where we were not long ago, is ridiculously low for this kind of economy."
Doll said a positive for the market is that Congress isn't a factor for now, like it was last year and earlier this year, around the fiscal cliff issues.
"With the federal budget deficit shrinking noticeably, that's a big positive. The other side of the coin is the pressure is off Congress to do anything and they're not going to do anything," he said. "Washington continues to be a sideline issue, less important."