For one thing, much bad news looms on the horizon. Unemployment is expected to top 10 percent sometime before labor day. Heck, even the White House has admitted to this. Defaults on commercial real estate loans have hit a 15-year high. States are still in desperate financial shape. California may have to pay bills with IOUs and other states such as New Jersey are being forced to raise taxes to balance their budgets. Meanwhile, oil prices are starting to climb.
Many investors, though, have already bet that things are going to get better. The Dow Jones industrial average has climbed almost 9 percent over the past 3 months while the S&P 500 Index soared more than 12 percent. Apple Inc. (AAPL) is up more than 31 percent amid investor optimism about the new line of iPhones. Google Inc. (GOOG) is up more than 21 percent because ... well it's Google. Other gainers in the last three months including Cisco Systems Inc. (CSCO), Intel Corp. (INTC) and Johnson & Johnson (JNJ).
For market gurus such as BlackRock's (BLK) Global Chief Investment Officer Robert C. Doll, there is plenty about the economy to like. He expects the S&P 500 to reach 1,000 by the end of the year though a near-term pullback could bring the index back to 800 to 850. The Index traded today at 927.57.
Overall, he expects double-digit percentage gains for U.S. stocks, outperforming European and emerging market equities for the rest of the year.
"Numerous economic `green shoot' have emerged, with home buying levels, housing inventories, business confidence, corporate inventories and industrial production levels all more positive than a few months ago," Doll said in a statement released last week.
Baltimore money manager Russell Croft told DailyFinance that he agreed that things look better. Nonetheless, the manager of the $90 million Croft Value Fund pointed out "we can't rely on things getting less worse. "
Even if the economy does recover, it will not be a straight shot up. Pessimism about the consumer has pushed down the shares of some former high-fliers including McDonald's Corp. (MCD) and Wal-Mart Stores Inc. (WMT).
We are cautiously optimistic that the market is going to have a decent second half," said Croft, whose firm manages $500 million. His firm likes Johnson & Johnson (JNJ), Schering Plough Corp. (SGP) and Valmont Industries Inc. (VMI).
For now, the words of financial experts will do little to soothe the nerves of investors battered by the recession. Croft says he understands why people may not rush out to buy stocks.
"There is a lot of money still on the sidelines," he says. "People are rightfully nervous."