When pessimism was surging in the wake of the financial crisis, bond giant Pimco embarked on an outspoken publicity campaign that turned its "new normal" view into a household phrase. Stocks were likely to languish in the coming prolonged period of muted growth, Pimco CEO Mohamed El-Erian repeatedly said, going as far as to declare a last winter's stock market rally as a temporary "sugar high."

Of course, crowding into bonds despite their meager yields would make sense given the dangerous deflationary view prominent bearish pundits like El-Erian were pushing when sentiment was at its most dour.

Now, though, a growing chorus on Wall Street is forecasting major gains for stocks in the coming year. Even Pimco has abruptly changed its tune. The bond giant has aggressively ratcheted up its growth forecast for the U.S. GDP to 3.5%, citing political factors like President Obama's agreements with the Republican leadership in Congress on tax cuts. Here's another sign that the tide is taking a more hopeful turn: After two years of having investors pile in, Pimco's Total Return Fund saw its first outflows in November.

Woefully Underinvested

But beyond high-stakes political dealmaking, investors should also consider a simpler alternative explanation for the turn in sentiment: Pimco simply got it wrong and vastly underestimated the potential for stocks. And while individual investors have already started dipping back into stocks, the country's major pensions funds remain woefully underinvested by historical standards.

So, a recognition by the country's big pension fund managers -- some of whom control hundreds of billions in assets and are desperate for returns to match their ballooning liabilities -- that they need to raise their exposure to stocks could further boost equity prices.

The equity allocation of private U.S. pension plans nosedived following the financial crisis, according to a recent report by investment bank Credit Suisse (CS). Equity holdings fell to almost 30% of overall assets from a trend of about 45% over the last five decades.

Is Bullish Sentiment Bearish?

Along with El-Erian, other high-profile bears like Goldman Sachs (GS) Chief Economist Jan Hatzius have also backed away from their pessimistic outlooks recently. Safe-haven assets like government bonds have seen their value tumble around the world amid surging yields, and dealers are anticipating further rises in 2011.

A sharp rise in bullish sentiment can sometimes signal market tops. After all, bull markets are often said to climb a "wall of worry." But as erstwhile pessimists shift their stance, they become the buyers that drive prices higher.

The thin equity holdings of pension funds, however, could make for an abundant source of new capital. As bearish pundits fold, pension fund managers no longer have the intellectual cover to pile into bonds with tiny yields even as stocks trade at reasonable valuations.

The bunker mentality encapsulated by the new normal view is fading fast. And stocks could get a nice boost as pension funds again shift their assets back to the old normal.

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7:37 PM Dec 14, 2010
George Bush invaded Iraq because....no one knows
I guess you mean why! Maybe you should check with Bill. He said Saddam had WMD's as didKERRY and Gore! Bill bombed Iraq,butting servicemen in harms way! So either he was a liar or he was negligent in his job as president! because he did nothing after the bombing! to rid Saddam of the WMD's that the Dems claimed he had!!!!!!

December 14 2010 at 9:55 PM Report abuse rate up rate down Reply

I think the tax code should be changed 5% for everyone...no forms to fill..just take it out of each pay or bonus.No special forms of exemption..straight and forward.State goverments the same ,maybe 2%...states and local government could levy reasonable sales taxes..but again that would be paid up front no year end deductions.

December 14 2010 at 9:16 PM Report abuse +1 rate up rate down Reply
1 reply to weissyoungstown's comment

That would be wonderful but makes too much sense for the thugs in DC.

December 14 2010 at 9:22 PM Report abuse +1 rate up rate down Reply

I think the pension money for our workers should be invested into chinese bonds and stocks...why put it into our stock market where it can be stolen freely by the next big scam artist..after all the china economy is booming..we gave them millions of jobs and we buy most of their products...it only makes sense and if someone steals there and they get caught..they get shot!

December 14 2010 at 9:10 PM Report abuse +2 rate up rate down Reply

Libs sure are stupid to believe that Dumbercraps have your best interest at heart. They have no hearts. Wanting to pass a 19000 page bill loaded with pork. Your kids will end up paying for it, too.

December 14 2010 at 8:48 PM Report abuse rate up rate down Reply
1 reply to savemycountry911's comment

You sure are obsessed with other people's money. NEWS FLASH: It isn't your money.

December 14 2010 at 9:07 PM Report abuse +1 rate up rate down Reply

George Bush liked to take vacations as President. 487 days on vacation in Texas and 490 days resting up at camp david. While on vacation in August 2001, Bush was handed a memo that said the Taliban and Osama Bin Laden was planning an attack on the US, possibly by using commercial aircfart. Bush told the messenger..OK..you have covered you ass and went back to sleep. The rest is history. Great President or just a boob sleeping at the wheel?

December 14 2010 at 8:28 PM Report abuse -1 rate up rate down Reply
1 reply to roperbingobabe's comment

There were thousands of warnings. Clintoon also paid no attention to them.

December 14 2010 at 8:47 PM Report abuse -1 rate up rate down Reply

This lame duck congress is going to do everything in its power to steal from us and harm the nation, until January 2...........Really? is that because no governing is the republican way???......Just say 'no'! Imagine a 'lame duck' being hunted by ex-president cheney!.......Better not stand next to him!

December 14 2010 at 8:23 PM Report abuse +2 rate up rate down Reply
1 reply to gardeningatnite's comment

I trust Cheney more than the Socialist, Obummer.

December 14 2010 at 9:07 PM Report abuse rate up rate down Reply

Recently republicans blocked a bill in Congress to cut off tax breaks for American companies moving American jobs out of the US. Four million American manufacturing jobs were outsourced under Bush. See a pattern here? Republicans say they are all for jobs for Americans....but allow the rich to move jobs out of the US to increase their wealth. It would appear republicans are not really interested in creating or keeping jobs for Americans......but are interested in creating wealth for the already rich.How is that working for Americans where unemployment is at 10% and imports from China are up 40%. Republicans say keep tax breaks for the rich and they will create jobs. The rich will create jobs....in China, Mexico, India...so they can become more rich.

December 14 2010 at 8:16 PM Report abuse +3 rate up rate down Reply
3 replies to roperbingobabe's comment

George Bush invaded Iraq because....no one knows. But what we do know is that Irag has much more violence that before the decider invaded and that Iraq is now leaning to Iran. Nice job Bush....billions of dollars spent, over 4000 Americans killed and many more maimed for life...plus the ones whose minds have been messed up. Nice job Bush. Just like Hitler you left your country with unfinished wars and a failed economy. Under Bush.....4 million manufacturing jobs were outsourced out of the US. Republican cronies on Wall St blew up the real estate and construction industry....resulting in millions of jobs lost. Miss you, senor Bush..........I guess we need more shoes. During your 8 years you did everything possible to help the rich and ignore the middle class. The rich are more rich because of you... I guess you believed in "trickle down" economics and thought the rich would create jobs. Well they have....in Mexico, India, China. Maybe you should have focused more on the middle class and their jobs........the jobs that made the rich...rich.The people who made the US the greatest country in the world.

December 14 2010 at 7:37 PM Report abuse -3 rate up rate down Reply
3 replies to roperbingobabe's comment

,,,,,,,,,,,,,,,,,,NITE NITE,,,,,,,,,,,,,,,,,,,,,,,,

December 14 2010 at 6:52 PM Report abuse +1 rate up rate down Reply

,,,,,,,,,,,,,,,,,,,,,STAR THIS LIBBIES ,,,(_)*(_) ,,,,,,,,LMAO

December 14 2010 at 6:51 PM Report abuse -2 rate up rate down Reply