Stocks May Steady in '09, but Troubles Won't Vanish

The major indices plummeted more than 35% over the past 12 months as the U.S. fell into a recession, and investors certainly are hoping to avoid a repeat in 2009.

However, the most they can probably expect realistically is that the stock market has ended its painful search for a bottom and that equities will find their footing.

No one disputes that 2008 was a year of crisis on Wall Street. For the coming year, many market observers are expecting a year of transition. Of course, with so much uncertainty clouding corporate earnings outlooks, investors are searching desperately for answers to some of the most troubling questions outstanding.

Fortunately, market strategists are ready to put a bitter 2008 in the books, and in some cases at least, make encouraging predictions for the coming year.

U.S. Equities Will Rebound in the Second Half

Without a doubt, Wall Street wants to wish good riddance to the past year, but forgetting about the damage that has been done won't be easy. Of the Dow's 30 components, 28 are set to finish the year with losses. Twelve of them likely will end 2008 with declines of greater than 40%, including General Motors (GM), Citigroup (C), Alcoa (AA), Bank of America (BAC) and American Express (AXP).

However, buyers will slowly return to equities as the year progresses, says Paul Nolte, director of investments with Hinsdale Associates, no matter how reluctant they are to invest initially.

"The underpinnings of the markets continue to improve, but it is still too early to say that the worst is finally over," Nolte wrote in a recent research report."We are expecting that the second half of the year is not only good for the market, but also we should begin to see the effects of the huge monetary 'dump' and the economy should also begin to improve."