Money Managers Are Still Bullish

AMERICA'S MONEY MANAGERS are still bullish about stocks, even after a blistering eight-month rally. But they also know from recent experience that trees don't grow to the sky, and bears don't disappear; they merely hibernate. So call our latest crop of Big Money bulls hopeful but cautious, too, about how much life is left in this rally, and how many bargains remain.

Nearly 60% of the professional investment managers responding to Barron's fall Big Money poll say they are bullish or very bullish about the stock market's prospects through the middle of next year. That's the same percentage of bulls as in our spring survey, and a sure sign the pros regarded the market as severely oversold when the Dow Jones Industrial Average fell to 6547 in early March -- a 12-year low.

Today's bullish investors see the major stock indexes making steady progress through next June, amid signs the U.S. economy is on the mend after a searing recession. The latest evidence came Thursday, when the government reported that U.S. gross domestic product grew 3.5% in this year's third quarter, spurred by stimulus spending. That is the first uptick in a year.

Based on the bulls' mean predictions, the Dow industrials could climb another 5% or so, to 10,187, by year end, en route to 10,771 by the middle of 2010. The Standard and Poor's 500 stock index could rally 8% in the next two months, to 1121, and another 6% through June, to 1190. Consistent with their fondness for technology shares, expressed elsewhere in the survey, they wager the Nasdaq Composite will do best, rising 15.9%, to 2371, from now through the end of next June.

Yet, almost 80% of our respondents think stocks are fairly valued or overvalued today, compared with 44% who felt that way last spring. And nearly half say the chance of a sharp correction in coming months is 50% or greater. Should the market plummet anew, 46% of managers expect cash to offer the best refuge, while 27% plan to hide in Treasury bonds and 16% in gold.

THE BIG MONEY MANAGERS are a lot more enamored of overseas markets than U.S. stocks these days. Only 28% think ours will be the world's best performer in the next six to 12 months; 49% expect emerging markets to take the lead, while 19% are betting on developed markets in Asia. Almost 60% of poll participants say they're bullish on Asian stocks, while 54% say they are upbeat on Latin America.

A fondness for foreign shares doesn't sit so well with one bullish manager, however. "The U.S. is still the strongest country in the world," says Dave Hartzell, founder of Buffalo-based Cornell Capital Management, which oversees almost $70 million. "It is still the safest place to stash your cash."

Hartzell is keeping his clients' money close to home in the expectation the Dow will trade up to 12,000 by the middle of 2010. "There's still a lot of fear out there," he says, noting it creates opportunity for bargain hunters.

Since March, Connecticut money manager Jim O'Shaughnessy has argued that last year's crippling reversal in stocks has created "a generational opportunity" for investors. "The world must have looked pretty bleak to investors at the end of 1941," he says.