Investors see "bottoming process" in U.S. stocks

NEW YORK (Reuters) - A growing number of high-profile investors have reversed course and now see value in U.S. shares even as volatility is expected to continue into 2009 with the recession seen dragging on.

On Friday, the Dow Jones industrial average climbed nearly 260 points even though the government said U.S. companies shed 533,000 jobs in November and the unemployment rate rose to 6.7 percent, the highest reading since 1993.

"All year, people have been so pessimistic that any kind of bad news and the market just goes down," said Chris Orndorff, who helps oversee $50 billion at Payden & Rygel Investment Management in Los Angeles. "But when the market shrugs off bad news just as it did, investors are signaling that the worst is behind us."

The allure of heavily-battered stocks, which are down nearly 40 percent, has grown so strong that some of Wall Street's most prominent investors are dipping their toes into the market, suggesting the brutal declines may be over the worst.

"We are in a bottoming process in the markets, but that doesn't mean we are now entering a bull-market phase," said Brian Gendreau, an investment strategist in New York for ING Investment Management Americas. "Things take time to work itself out."

Gendreau and Orndorff join some of the savviest money managers -- Jeremy Grantham, chairman and market strategist of money manager Grantham, Mayo, Van Otterloo & Co.; Bill Ackman, who runs the Pershing Square hedge fund; and Bob Doll, global chief investment officer of equities at money manager BlackRock Inc. -- who are betting that equities have fallen to levels far below their intrinsic value.

The Standard & Poor's 500 .SPX is down 40 percent, the Dow Jones industrial average .DJI is down 35 percent and the Nasdaq Composite Index .IXIC is down 43 percent this year.

This week, Legg Mason's Bill Miller, a celebrated value investor but whose stock picking is far off the mark this year, said the "bottom has been made" in U.S. equities, and forecast opportunities for strong gains once markets rally.

Miller said that all long-term investors believe that stocks today are cheap, but credit markets must regain health before equity markets can rally. It "looks as if the bottom has been made" in U.S. stocks, said Miller, who runs Legg Mason's $7.6 billion Value Trust fund.

At the Reuters Investment Outlook Summit this week, 15 prominent portfolio managers including legendary hedge fund investor and philanthropist Michael Steinhardt will discuss if U.S. stocks have indeed hit bottom.

The topics won't stop there. The summit will cover issues including: How much longer is the credit crisis and recession likely to go and why? What will pull the U.S. out of the debt malaise and consumer crunch? Is the vicious deleveraging process over? How will President-elect Barack Obama's fiscal stimulus package take shape? And of course, where are the best -- and riskiest -- investments in 2009?

BlackRock's Doll; Mohamed El-Erian, chief executive officer of bond-fund giant Pacific Investment Management Co.; international investor Jim Rogers; and John Taylor, chairman and chief executive officer of FX Concepts, along with Steinhardt will address these issues at this week's Reuters Investment Outlook Summit.

Doll said all of the variables to date -- fiscal and monetary policy initiatives, the price of oil, lower government bond yields, political change in Washington and now quantitative easing by the Federal Reserve -- seem to be working together to arrest the credit crisis, bolster economic activity and put a floor under deeply distressed stock prices.

That said, "confidence is the key," which is a factor the financial markets have lacked all year, he added.

(Editing by Leslie Adler)