BlackRock's Chief Equity Strategist Bob Doll has released his 10 Predictions for 2012.
One of these predictions, for the U.S. economy and market, contains what initially seems to be a major inconsistency: Disappointing earnings and rising stock prices.
Doll projects that the U.S. economy will grow 2%-2.5% in 2012, "muddling through" a tough environment without plunging into a double-dip recession. This economic growth, however, will not support the earnings growth forecasts that stock analysts are currently looking for.
Analysts currently expect earnings on the S&P 500 to be $108 in 2012. Doll predicts that earnings will actually come in at about $103.
Although this will be a disappointment relative to current expectations, Doll also thinks that stocks will have a very good year.
Thanks to "multiple expansion"--stocks trading at higher multiples of earnings than they currently do--Doll thinks stocks will rise in "double-digits" in 2012.
And how is this possible, given that Doll also expects earnings to disappoint?
It is possible, Doll says, because stocks are currently depressed because of fears of a blow-up in Europe.
Once investors begin to realize that Europe will not blow up next year, Doll argues, the market's PE multiple should expand. And this, combined with 6% year over year earnings growth, will drive the market up double-digits.
That's Doll's base-case prediction.
Of course, he also acknowledges a "nemesis" scenario in which Europe does, in fact, blow up. If that happens, all bets are off.
SEE ALSO: Bob Doll's 10 Predictions For 2012