After An Ugly First Quarter, Stocks Look for Rebound

After an ugly first quarter for stocks, investors are hoping that the worst may finally be over.

Richard Drew

There is growing evidence that turmoil in the financial sector has not passed and could get even deeper. Yet Wall Street is showing many of the same signs -- volatility, volume and a watershed event -- that suggest a bottom is near.

While the final numbers won't be out until the end of today's trading, the first quarter results aren't pretty: The Dow Jones Industrial Average is off 7.5 percent so far, while the Standard & Poor's 500 has fallen 9.8 percent and the Nasdaq, the key barometer of technology stocks, has tumbled a staggering 14.3 percent.

Depressed yet? Well, so much for the bad news.

The good news is that most of the damage reflected in those numbers was done during January and February, and momentum in March has some analysts looking for better days ahead.

With the major indexes set to finish essentially unchanged for March, there is a growing hope that the market has found a bottom and is ready for what likely will be slow but steady progress ahead.

"There's still going to be caution, it's still going to keep the market at bay, but the fundamentals are not bad," says Peter Miralles, president of Atlanta Wealth Consultants. "It's a good time for investors to be accumulating investments for the third and fourth quarters."

So what's got everyone so excited about such a moribund market?

For one, analysts see financials, which have essentially been circling the drain for months, ready to come back now that the worst has washed out with the crumbling of Bear Stearns , in the process of being purchased by JPMorgan Chase.

Various other sectors, from consumer staples to utilities to telecomms and other tech areas, have bounced well off their bottoms and found momentum through March.

Commodities, which sizzled in January and February in part as a hedge against a weak stock market, have come back to Earth with most, outside of still-strong oil, showing either modest gains or losses over the past month.

Feasting on Financials

The confluence of events has many investors scouring the market for an entry point.

"The markets have felt like a many-footed monster with lots of dropping shoes, and Bear Stearns was the last major shoe to drop," says Diane de Vries Ashley, managing partner at Zenith Capital Partners. "What we're suggesting to our clients is they look a little bit more optimistically and contemplate taking some of the excess cash that they've had for a while and gently but fairly steadily put it into the market.

"I wouldn't go rushing in, but we're certainly seeing signs of a little bit of a bottom."

Of course for some analysts, anytime is a good time to play the market, even when it's trending lower.

"We're brainwashed to believe that up is good and down is bad. People have to realize that there's money to be made in both directions," says Ron Ianieri, chief options strategist for Options University, a company that counsels investors on options trading.

Ianieri is bearish on stocks, but says, "When we're in down cycles there's plenty of money to be made on the down side and that money comes even faster than when we're on the upside."

Like many others, de Vries Ashley is taking a look at real estate but also sees a wide opening in financials right now. Friday marked another big day for news in the sector, with Citigroup advising clients to buy Lehman Brothers stock and Citi itself announcing an aggressive restructuring plan.

Nadav Baum, managing director for investments at BPU Investment Management, has favored the sector for months, even through its deepest turmoil, but prefers large-cap commercial institutions like Bank of America and JPMorgan Chase to the investment banks.

"I'm still buying high-quality financials. You've just got to be patient," Baum says. "I think the key to this thing is staying well-diversified, knowing exactly what your goals and objectives are and what your risk level is. How comfortable are you with volatility? If you can identify those pieces you become a very successful investor because you don't let moves like this in the market dictate where you're going with your money."

Ianieri also likes JPMorgan, though he advises overall to avoid financials as troubles continue to unwind in the sector.

CONTINUED : Looking for Tech, and Looking Abroad

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