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.