The near-death stock market of 2008 continued to revive Friday, the first day of trading in the new year.

Market indexes rose about 3 percent, heading up for the third day in a row. Since the 2008 bottom on Nov. 20, the S&P 500 index has risen 24 percent.

Industrial companies, including Minneapolis-based Graco -- which rose nearly 5 percent Friday to close at $24.85 per share -- led a long list of gainers.

Still, investors are hard-pressed to forget the dismal declines of 2008. Last year's drop -- the steepest, fastest market fall since the Great Depression -- wiped out market gains since 2006.

Even after the December rally, the S&P 500 index was down 37 percent for the year, the Russell 2000 was off 34 percent and the Bloomberg Star Tribune index of Minnesota's 100 largest public companies had lost 34 percent. The total three-year returns, respectively, were minus 26 percent, minus 25 percent and minus 26 percent.

Regardless, a lot of market watchers are warming to the rebound.

"A lot of the bad news in the economy already has been discounted by the stock market," said David Darst, veteran equity market analyst at Morgan Stanley in New York. "The rays of hope go to lower gas prices, which puts about $350 billion more annually into the hands of consumers; low interest rates; the quantity of money is being expanded [through the Federal Reserve]; and there are $3.7 trillion in money market funds earning little, and maybe more in U.S. Treasury securities," Darst said. "If this market continues to spark, some of that cash is coming into the stock market.

"And then there is the 'Obama effect,'" he added. "[The president-elect] is seen as a skilled speaker, like a Ronald Reagan or John F. Kennedy, with the ability to inspire confidence and put through effective policies."

The equity team at Morgan Stanley projects a 75 percent probability that the market will rise 10 to 25 percent in 2009.

"There's a 25 percent chance, we believe, that nothing works and people will stay frightened and 2009 earnings will fall," Darst said.

To be sure, some prognosticators expect more bad news and market malaise. But they appear to be in the minority at this point.

"Still, it will take at least six to 12 months of markets that are flat or up, and six to 12 months without a major scandal, for investors to have confidence in the system again," said Keith Tufte of Longview Wealth Management in Eden Prairie.

"Investors have felt that you can't trust your government, the markets, the regulators, your money manager, the SEC [Securities and Exchange Commission], your bank, the investment banks or the ratings agencies," Tufte said. "Where are they supposed to put their money?"

Tufte expects the pain of 2008 to give way to hope and a rising stock market based on improving "economic prospects and earnings for 2010 and 2011."

Classic market recovery theory holds that the stock market forms a bottom and starts rising about halfway through a recession. Tufte and others believe that we are there.

"All the huge monetary stimulus the government and Federal Reserve have thrown into the markets will have a positive effect in 2009," he said. "Obama will come with a $500 billion to $1 trillion fiscal stimulus package early in 2009 that should help the economy."

Tufte said housing activity may be bottoming after two years of declines. "If it just stops getting worse, that will help the economy," he said, noting that mortgage rates have fallen about a full percentage point over the past month.

I guess that means that we'll worry about inflation and how to pay for all that government spending downstream.

Back at the ranch, only one in five Minnesota companies posted a positive total return, including dividends, over the past three years.

Capella Education, the fast-growing online university that began selling stock in November 2006, led the field, up 194 percent. Mosaic, the fertilizer maker, rose 137 percent -- despite a 63 percent decline as commodity prices returned earlier gains in 2008. C.H. Robinson, the global transportation consultant to hundreds of companies, posted gains of 55 percent, followed closely by Buffalo Wild Wings, the hot restaurant chain, with 54 percent. And stalwart General Mills, which posted gains of 9 percent in 2008, managed to climb 33 percent over the past three years.

A New Year's meal of chicken wings or cereal and yogurt at home trump a five-star restaurant when you're thin in the wallet.

Neal St. Anthony • 612-673-7144 •