Investor who bet stocks would fall now thinks the market's hit bottom

Are we there yet?

Like a kid on car trip, some investors are antsy and searching for a sign that the stock market has finished its long ride down.

On Wednesday the stock market bounced back from a five-day slide, raising the question of whether it's finally turned the corner.

Twin Cities money manager Steve Leuthold, whose Grizzly Short Fund returned 74 percent last year betting against U.S. stocks, may be among the most bullish among area market pros. In an interview on Bloomberg Television, Leuthold said that now is the time to buy equities. He disagreed with those who compare current economic conditions to the Great Depression.

"We've been in much worse, much more panicked and more scary situations in the U.S.," Leuthold said, noting that investors need only look back to 1974 to find worse economic and stock market conditions.

Leuthold predicted that the Standard & Poor's 500 index will surge to at least 1,000 in 2009, representing a gain of more than 40 percent from the index's Tuesday close. The index rose 2.4 percent to 712.87 Wednesday, fueled in part by news that China will boost its spending on infrastructure and manufacturing.

But Leuthold's optimism has been off-target in recent months. In January he said he believed the S&P 500 had sunk to its low point Nov. 20 when it hit 752.44. Yet in the last week the index sank below the 750 mark, hitting a 12-year low on Tuesday of 696.33.

For the most part, Twin Cities area money managers are advising investors to take a cautious approach to getting back into stocks and not to expect any substantial returns anytime soon.

"There's only one question people should ask themselves before getting back into the market: What if they're wrong?" said Bob Markman, whose Edina firm manages about $80 million. He said the risk of further market declines still outweighs the risk of staying on the sidelines. "For most people the pain of loss is far greater."

One alternative for investors who moved stock investments into money market funds would be to use dollar-cost averaging to gradually re-enter the market over the next year or so, Markman said.

Mark Pearson, a Savage portfolio manager, also suggests that approach. Pearson said his portfolio is invested about half in stocks with the rest in fixed-income and cash-equivalent investments. He figures that the best opportunities in the stock market now are in health care, energy and commodity-related companies. He's avoiding consumer staple stocks, which he believes may be fully priced, and retail stocks, which could continue to suffer in the faltering economy.

Bo Beckman, senior portfolio manager of the Oxford Private Client Group, said he began moving out of cash equivalents and into the stock market on Tuesday, investing in a wide range of sectors except for utilities and financial companies. Part of the reason, he said, was the S&P 500 hitting 700, which he figures was about the bottom.

"If they think that's going to continue, I would recommend that they never own stock again," he said. "If they believe that capitalism will prevail as the bedrock of our market structure, then they should consider getting back in."