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Recovery Is Right Around the Corner

So just where is the market right now -- in the beginning stages of a new bull run, or just a dead cat bounce in the middle of an extended bear market?

Well, no one knows for sure, but some very important folks in the investment business are finally seeing a light at the end of the tunnel.

Full steam ahead
According to a recent survey conducted by Merrill Lynch, mutual fund managers are turning increasingly bullish. The survey indicated that 62% of the managers interviewed feel the world economy will improve in the next 12 months. In support of this belief, these managers have been putting some of their excess cash to work. Average cash holdings fell to 4.3% in May from 4.9% in April. The biggest recipients of this loosening of cash have been cyclical and emerging markets stocks, especially in China.

Signs that our economy is at least bottoming out have been cropping up in recent weeks. However, there are still a lot of variables at play (unemployment, the health of our financial system, skyrocketing federal debt) that could keep a lid on future growth. Even if the recession ended tomorrow, growth is likely to be anemic at best. We're in tricky waters here -- trying to protect against another dip down, while angling to capitalize on any rebound in the making.

Certainty in uncertain times
While we don't know if the stock market has hit a bottom or not, there are certain steps you can take now to position yourself for recovery, whenever it does occur. First of all, make like the fund managers and revisit your portfolio's asset allocation. If you've got a big chunk of change sitting on the sidelines, put it to work! Likewise, if you haven't rebalanced in a while and are heavy on the fixed income side, sell some of your bond holdings and pick up a few more stocks or diversified stock funds. If you wait until the signs point to absolute certainty that the economy is improving, it will be too late, and you'll have missed most of the rebound. Whittle down your cash now and get in on the action!

So where is all the smart money flowing right now? Well, according to the same Merrill Lynch survey, fund managers are shifting out of consumer staples names like Procter & Gamble (NYSE: PG  ) and Kraft Foods (NYSE: KFT  ) and into more cyclical stocks. It may not be a bad idea to pick up a few of these economically sensitive companies right now, as long as you stick to solid companies. Industry leaders with a strong dividend yield like ExxonMobil (NYSE: XOM  ) and PPG Industries (NYSE: PPG  ) should get top consideration when shopping in this corner of the market. Recently upgraded U.S. Steel (NYSE: X  ) is another cyclical name that could reap strong benefits from an improving domestic economy.

Another area that has been getting a lot of love from fund managers lately is emerging markets. While a lot of the movement into this area is likely chasing after the stellar performance this sector has seen as of late, emerging markets still offer some of the best long-term growth prospects on the globe, as long as you can ride out the volatility. Two emerging market cyclical plays that the team over at Dodge & Cox is staking their bets on are Brazilian oil giant Petroleo Brasiliero (NYSE: PBR  ) and Mexican cement manufacturer Cemex (NYSE: CX  ) . Almost all investors should have at least some emerging markets exposure at all times, so if you're lean in this area, now is the time to stock up.

Of course, if you want an even closer inside look at what the industry's brightest investing minds are doing with their money, look no further than the Fool's Champion Funds investment service. You can take a free 30-day trial and get a peek at what the best money managers are buying and selling in today's environment.

We may not know exactly when the economy, and the stock market, will hit bottom, but by taking a few steps to prepare your portfolio now, you'll be in the perfect position to benefit from the rebound, whenever it takes place.

Amanda Kish heads up the Fool's Champion Funds newsletter service. At the time of publication, she did not own any of the companies mentioned herein. Cemex is a Motley Fool Stock Advisor selection. Petroleo Brasileiro, Procter & Gamble, and PPG Industries are Motley Fool Income Investor recommendations. Cemex is a Motley Fool Global Gains pick. The Fool owns shares of Procter & Gamble and Cemex. Click here to find out more about the Fool's disclosure policy.

Read/Post Comments (14) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 22, 2009, at 2:54 PM, Repurposed wrote:

    Oh wonderful. The head of Champion Funds is recommending advice she got from Merrill Lynch in a survey of mutual fund managers (presumably also including the ones she recommends????). In the article, she recommends individual stocks but mentions none of the champion funds by name, and it may say that none of those stocks are owned by either her or perhaps Champion Funds (I'm not sure of the TMF policy). Sigh, but it does follow the formula for getting an article published at TMF.

  • Report this Comment On June 22, 2009, at 3:17 PM, Marshal82 wrote:

    PPG has always been, and is continuing to be a SOLID investment

  • Report this Comment On June 22, 2009, at 3:30 PM, SteveTheInvestor wrote:

    I'm not too comfortable with this stock Marshal82. The dividend payout is quite high and if I bought it would be for the dividend. Is a dividend cut possible?

    Pretty dang high P/E as well.

  • Report this Comment On June 22, 2009, at 3:41 PM, mikecart1 wrote:

    Agree with Steve PPG is not a SOLID investment lol.

  • Report this Comment On June 22, 2009, at 5:24 PM, sommerTN wrote:

    I can't stand these midleading headlines. Ms. Kish titles the article "Recovery is Right Around the Corner."

    Her SECOND sentence begins, "Well, no one knows for sure..." DUH!

    This seems to be the way TMF is going with their articles. A great "hook" to get you to point and read, only to turn out to be a complete waste of time.

    A little more factual info and a little less sensationalism is appreciated.

  • Report this Comment On June 22, 2009, at 5:38 PM, smaulcap wrote:

    That is not a recovery Amanda is seeing around the corner, it's a pile of BS. Was she awake today? In the pile of BS around the corner were the Merrill fund managers wallowing in it. Oh yea.......I'm going to put my faith in the Merrill fund managers? You gatta be kidding! Those are the last people she should be quoting.

    Hey Kish.....You and your CFA need to wake up and smell the coffee. While you're smelling the coffee, turn on Bloomberg news.

  • Report this Comment On June 22, 2009, at 7:12 PM, whatafoolwasi wrote:

    Recovery right around the corner? And you then recommend U.S. Steel - down over 9% today.

    Fool's name is appropriate.

  • Report this Comment On June 22, 2009, at 8:00 PM, vmh104 wrote:

    This would have been a pretty neat writeup in March... but June 22nd? Amanda where have you been?? This article epitomizes herd mentality fomentation. Or actually its' even worse than that. It's not just bulls cheering on bulls as the market nonsensically surges. It's bulls cheering on bulls that have already left the building... I'm not sure what this is... a kamikaze lemming suicide cry perhaps?

  • Report this Comment On June 22, 2009, at 9:37 PM, Northernliving wrote:

    This woman is nuts. This market isn't on a road up!

  • Report this Comment On June 22, 2009, at 9:51 PM, ds10 wrote:

    Oh Boy, here we go: listen to Merrill Lynch! This

    company has all the financial buoyancy of a lead sinker.

    The recent Captains of this ship left with all the cash the

    lifeboat could hold. And the Board of Timid Advisers

    allowed it.

    Now, whenever Merrill Lynch speaks, view this voice with skepticism. Poor Mr. Merrill and Mr. Lynch are

    rotating in their graves as their once-honored outfit

    now founders on life-support.

  • Report this Comment On June 22, 2009, at 10:24 PM, NoMoeMoney wrote:

    Wow, talk about latecomer to the party: "Oh look, there is a rally going on, I better get into some of that fun! Wait, where did everybody go? Come on people, start dancing and having fun,fun,fun... "

    Thank god there was a person on the Titanic handing out lifejackets, this way they could count the bodies as they floated by.

  • Report this Comment On June 22, 2009, at 10:31 PM, jtoycen wrote:

    I wish i could escape the endless barage of dangerous advice like this article and a source of information i can trust, the people that run this site have been saying "keep investing" like a broken record ..

    Think ill sign up for another "fools" news letter.

  • Report this Comment On June 23, 2009, at 4:08 AM, AfoolwondersNot wrote:

    Call me a Fool but don't call me a fool. Isn't the mantra "don't listen to the fund managers and the analysts"? They have "vested interests" and so on.

    Who know what is going to happen. The world economy may melt down to a dog pile of glistening fools gold. This thing is so shakey IMO that ANY advice *seems* like nearly sheer speculation. I'm not afraid to admit that I am lost in this thing. Is anyone else willing to man up? Is it only me or does it seem

    like you either have to be in the top .0009%ile of humanity (those so inside that they resemble black holes) to make really really good moves. OR you have to read 22/7 with the other 2 hours spent wondering which arguement sounds more compelling with a 51% probability of being closer to the truth?

  • Report this Comment On June 23, 2009, at 12:10 PM, jesse2159 wrote:

    I'll admit that although I felt uneasy in August 2008, and barely noticed the storm clouds approaching, I never saw this financial mess coming to the extent it has.

    But one thing I did get out of it was this: INVESTMENT EXPERTS ARE FULL OF IT.

    To predict anything a year away is stupid. To predict a market, the weather, love, sporting events, political elections isn't just foolish, it's about the same as giving a thousand monkey's a thousand golf balls and clubs. Sooner or later one will hit a hole in one. But I'd place my bet on later,...a lot later.

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