Will bulls be held at bay in 2009?

JOHN REID BLACKWELL TIMES-DISPATCH STAFF WRITER
Published: January 4, 2009

After the stock-market carnage of 2008, investors can't be blamed for going into 2009 fearing another year of the bear market devouring investment portfolios.

The bear may lurk for a good while yet, but don't lose hope for the eventual return of the bull either, some local investment advisors and market analysts say.

"Right now might be the best time to be buying stocks for the long term," said Keith Muth, a certified financial planner and chief investment officer at Virginia Asset Management financial services firm in Chesterfield County.

"We don't know if the market will go lower, but if you look out over the past year, [stocks] are certainly a lot cheaper."

Whether to load up on stocks now, however, "is a personal decision," he said. "And it would not be the best time for someone who can't stomach the volatility of the market."

Investors need to carefully consider how much risk they are willing to tolerate in 2009, he said.

In tough times like these, Muth said he finds solace in studying history.

While every recession and bear market is different, "there has been a certain amount of comfort I have taken in the fact that we have been here before," he said. "Since 1950, we have had nine recessions, and seven of them have had stock declines of 20 percent or more. In six of them, stocks rose before the end of the recession."

When the recession might end is anybody's guess, analysts said.

Aggressive steps already taken by the Federal Reserve and U.S. Treasury Department have helped to prop up the ailing financial system.

But "they are there to keep the boat afloat rather than propelling the boat forward," said A. Marshall Acuff Jr., managing director at Cary Street Partners investment brokerage in Richmond.

Perhaps more important in 2009 is the market's view of how the incoming Obama administration and Congress shape a proposed economic-stimulus plan that could amount to $1 trillion over several years.

The question there, Acuff said, is "will it be applied in a way that is going to have a real economic benefit?"

If the economy shows signs of improving in the second half of 2009, investors who pulled money out the market by the trillions of dollars in 2008 might return, jolting it back to life.

"Keep in mind that the market is a forward-looking mechanism, so if the economy starts to recover then the market would presumably move ahead of that," said Moultrie Dotterer, equity strategist at Scott & Stringfellow in Richmond.

The markets will look for signs of improvement in housing, employment and consumer confidence, he said.

The recession could reach a trough in 2009, but the recovery is likely to be slow, Wachovia Securities Chief Market Strategist Al Goldman wrote in a research report last week.

But slower growth may be healthier over time if excesses are avoided. The record-setting stock gains of previous years, which were partly driven by debt and excessive risk taking, are likely to settle into a safer approach to investing.

"We believe a healthier, less frothy stock market, will make us wealthier, but probably not quickly nor dramatically like in the 1990s," Goldman wrote.

. . .

Having a diversified portfolio wasn't any help in 2008, as almost every investment performed poorly for the year.

But for the long term, diversification remains the key to successful investing, analysts said.

As 2009 starts, some opportunities to make investments at bargain prices could prove valuable in years to come.

"This could be the best buying opportunity for 10 years," said J.B. Bryan, president of J.B. Bryan Financial Group in Henrico County.

In 2009, Bryan said she would focus on investments in businesses that tend to perform better in a recession, such as discount retailers and health care.

Michael Jones, chairman and chief investment officer of Riverfront Investment Group, a money-management firm in Richmond, said he sees attractive opportunities in corporate and municipal bonds.

Jones and Scott & Stringfellow's Dotterer recommended looking for bargain stocks among well-established, blue-chip companies with low debt and relatively high dividends.

. . .

For the immediate future, though, there is likely more pain ahead as corporate earnings suffer.

"When we see the fourth-quarter 2008 earnings and first-quarter of 2009 earnings, they are going to show some fairly ugly downturns still in place," Jones said. "The market very seldom can rally significantly while earnings are still going down."

After the massive changes that hit the global economy in 2008, investors may have to get used to seeing more modest returns for a long time.

Acuff said he foresees a continued bearish trend, driven by much deeper forces than just the current recession and credit crunch.

"What is happening is that people are recognizing that a number of the trends of the '80s and '90s that supported a fantastic market were driven by deregulation, declining interest rates, declining taxes, increasing evidence of successful technological innovation, and, ultimately, the public getting more excited about the stock market. Really, what has been happening since 2000 is a reversal of those trends," Acuff said.

"I don't want to sound overly bearish," Acuff said. "It's just that we have to understand that we have been in a period of exceptional growth and opportunity in equity markets for the last 20-some years. What we have ahead is something different driven by somewhat different forces.

"What you can hope for is a market that settles down in '09 to more of a trading range," he said. "I really don't see us going back into a bull market anytime soon. I suspect that in a relative sense, 2009 will be a better year for the market than 2008, but that is not saying much."
Contact John Reid Blackwell at (804) 775-8123 or .