While Santa was a little slow to get to Wall Street, January could bring gladder tidings.
The looming inauguration of Barack Obama combined with the so-called January Effect—in which stocks traditionally rise in the first week of the new year as year-end tax sellers return to buying—are expected to give stocks a boost.
There's still considerable caution about stocks. And as Monday's market shows, any rally is likely to be in fits and starts. But the outlook for the early part of 2009, at least, is optimistic.
"There's a good chart formation on the Dow, an upside-down head and shoulders that was created," says Michael Cohn, head of Atlantis Asset Management in New York. "This market could rally all the way through sometime getting toward the inauguration. We deserve a couple-week rally."
Indeed, chart analysts are seeing a battery of positive factors, including a breakout from the 50-day moving averages that indicate a market poised to climb higher.
"What you have taking place here right now is something in addition to the January Effect," says Jordan Kimmel, fund manager at Magnet Investment Group in Randolph, N.J. "There's so much incredible lemming or crowd following. There's a lot of people saying the market's definitely cheap enough, there's enough value around for me, I just have to personally wait for the moving average to turn up. All of a sudden you've got it now."
Global-growth plays such as shipping companies and infrastructure will benefit in the days ahead, Kimmel says. Some market pros are looking at energy leaders, both traditional and alternative to show the way, while still others think health care will benefit as a defensive play in difficult economic times.
There's plenty of historical support for a January rally.
The market has an average gain of 1.2 percent in January, which posts a monthly gain about two-thirds of the time. In addition, Januaries following a presidential election rise nearly 1 percent, though the gain is usually half that when the White House changes parties, as it will do this year.
"We would suggest to them to start taking some positions and get back to what their asset allocation should be whether they're conservative or aggressive," said Rob Morgan, of Clermont Wealth Strategies.
To be sure, there is considerable disagreement over what sectors will be leaders as the market looks to recover the value lost in 2008, and in particular over whether emerging markets will resume their place as a fashionable investment.
For foreign market supporters like Kimmel, areas such as shipping companies and basic materials will gain as the pockets of strength abroad materialize.
"Lately there's been a little bit of leadership in health care," Kimmel also points out. "I do believe that a lot of the best-valued companies, the ones generating the most cash, are still in areas like basic materials, the things that support the global build-out."
In fact, Kimmel thinks the new year will bring back a whole slew of buyers who were forced out of the market in 2008.
"I just believe that what happened in the last quarter of last year was more forced redemptions than actual sellers," he says. "You had portfolio managers that wanted to buy and they were forced to redeem stuff that they were buying."
The buying climate also could be strong despite a rash of bad news expected to continue to hit the markets—growing unemployment and poor earnings outlooks chief among them.
"Everything from the numbers to the guidance going forward is going to be pessimistic going into earnings season," Cohn says. "But it's all baked in the cake as far as I'm concerned. So I like this year. There's a lot of green on the screen."
Alternative energy companies, particularly solar, should be attractive this year, says Cohn, who sees the trade getting a boost from the Obama administration's attempts to alleviate the country's dependence on foreign oil.
"We think it will be a good year for investors, and this represents a historic buying opportunity," Phil Dow, director of equity strategy at RBC Wealth Management, told CNBC. See video for Dow's full comments.
Playing it Safe
While aggressive bulls like Kimmel see the Dow surging to 11,000 this year, others are more cautious.
As Cohn points out, any push at this point is going to be considered a bear market rally because of how high the indexes have tumbled from their highs.
Yet even among bears, there's a feeling that some stocks will stand to gain and should be included in investor portfolios.
"The technical picture has been good over the past few weeks. That might push the market a little bit higher," says Jay Wong, portfolio manager at Los Angeles-based Payden & Rygel. "The fundamentals still remain weak and I think that people might just be a little bit overly optimistic with a new president coming in."
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Of the sectors that could help the market, Wong likes energy, particularly ExxonMobil, which he calls a bellwether for the sector. Payden & Rygel, which uses large-cap growth strategies in its investments, also likes Consol Energy, XTO Energy and Petrobras.
Private education companies have been popular among many investors as well--capitalizing on a trend of laid-off workers looking for training--and Wong says Apollo Group is solid in that area.
Another weak-economy play he backs is Dollar Tree , which has been a leader on the retail side.
Indeed, even Kimmel, who predicts a bull run that will be measured from the market's Oct. 10 lows, says investors still need to be careful in what he and others call a stock-picker's market.
"It's always the wrong time to buy the wrong company," Kimmel says. "You have to be very careful in this market, but I do think we have a new bull market that has already been started."