Wells Capital Management: James Paulsen, Ph.D. , Chief Investment Strategist.
Don't Be Spooked By "Bear Market Rally" Thoughts. The stock market may again test previous lows and could conceivably even break to a marginal new crisis low, but we are convinced stock prices have essentially bottomed and will not likely decline to any meaningful new low on a sustained basis.

Indeed, the bottom on Wall Street has been thoroughly tested again and again since markets first bottomed last November, making this period look like a final bottom for the crisis. Moreover, the stock market increasingly is being led by the most economically-sensitive sectors (e.g., retailers, technology, materials, emerging market and small cap stocks), recent daily trading volumes that have been stronger on up days than down days, late-day selloffs so prevalent last year they have given way to many more late-day rallies, and an economy that is beginning to show more signs of bottoming.

Valuations across nearly all "risk asset classes" are attractive, most households are underweighted stocks and overweighted with cash, inflation and Treasury yields remain near postwar lows, economic policy stimulus is starting to show signs of working, and we expect real GDP growth to turn positive again in the third quarter of this year.

We recommend investors stay diversified but overweight those sectors most sensitive to an economic recovery (i.e., industrials, transports, materials, technology and consumer discretionary, small cap stocks, and emerging market equities), stay underweighted to the defensive sectors still overpriced by crisis fears (i.e., consumer staples, utilities, health care, large cap stocks, Treasury bonds or cash, and U.S. dollar exposure), and also consider some exposure outside the stock market toward corporate or junk bonds, municipals, or commodities. Financial markets will not recover in a straight line. However, investors should stay focused on how much unrealized value has been created by this crisis. The upside from the current level remains spectacular!

Northern Trust: Katherine Ellis Nixon
  We hate to throw cold water on the euphoria, but we maintain a rather skeptical view of both the parabolic rise in equity prices as well as any perceived earnings turnaround. Regarding the earnings outlook, digging beneath the surface reveals continued weakness in corporate fundamentals.  While both Citi and Goldman presented better-than-expected earnings, the drivers of both were exceptionally strong results in trading - an unpredictable and likely unsustainable source. Regarding General Electric, excluding the benefits of tax credits and other one-time adjustments, the earnings were in line with a low expectation that included continued weakness in industrial and consumer businesses across the board.

One of the most interesting releases last week came from Capital One. With a focus on consumer credit, Capital One provides some perspective on the health of the consumer, who generates 70% of gross domestic product. The news from Capital One was not good:  a sharp acceleration in the percentage of credit card loans written off, also known as "net charge-offs." There is a historically high correlation between credit card charge-offs and unemployment. Thus, we may see further and potentially dramatic weakness in this area as unemployment continues rising. Broadly speaking, delinquencies and charge-offs have already exceeded analysts expectations, hence investor expectations will need to adjust to this new reality. It is difficult to make the case for a strong economic recovery without some stability around the consumer.

Broad market indexes have continued to rally, and the S&P 500 is up almost 30% from its March low. Examining the nature of the recent rally, however, highlights some interesting points and calls into question the sustainability of this run-up. It seems that the lowest priced stocks, as well as those characterized as the least expensive as measured by price-to-book-value, have led the market by a substantial margin. These tend to be the lower-quality equities, and certainly are those stocks that likely have fallen the farthest during the bear market.

The post-March rally has occurred broadly across sectors and market capitalizations and also is quite pronounced among consumer cyclical, financial and housing stocks. Some observers suggest this bounce is a function of short-covering or speculation. This could also reflect the collective market's wishful thinking that the "green shoots" Bernanke sees are truly signs of a robust recovery to come.

We have seen signs, albeit mixed, of economic stability, and we do expect the heady combination of fiscal and monetary stimulus will revive the economy late in 2009. For now, we continue to look for indications of sustainable recovery in the economy as well as in corporate earnings that are needed to support a more bona fide market recovery.

Morgan Stanley: Jason Todd, Naseh Kausar
Bear market rally or something more sustainable? We believe that at 800 and above on the S&P 500, this remains a bear rally to sell into. However, we cannot ignore the improvement in selected data and additional policy measures that are helping to reduce long-tailed growth risks, and we must now consider the possibility that the market could have already put in its lows at 666, even if we see near-term downside risk.

Morgan Stanley: Richard Berner, Jason Todd
We think investors can play the rally, but we remain cautious and look for opportunities to sell. The equity market has reacted to an improving 'second derivative' by rallying 28%. We think the global recession has further to run and that the coming recovery will be modest. The breadth, depth and duration of this downturn also raise the potential for head fakes and false dawns on the path to a sustainable upturn that will, in turn, drive bouts of investor optimism and pessimissim.

Goldman Sachs: Abby Joseph Cohen, President Global Markets Institute
One of the things that we can feel more comfortable about in recent weeks is that the markets are more normal than they were. This applies not just to the equities market, but to the bond market. There will be more bad news coming, especially on unemployment. The question for investors is whether or not the bad news is already incorporated into share prices. We have undergone many months of very dramatic declines in earnings expectations and revisions of forecasts.

I think that investors believe the forecasts are as low as they need to be. That's in the U.S. not in Europe or Japan where they are in denial and have not done enough to stimulate their economies. Government policy makers there have been slower to move. Keep in mind the economies of the world are interconnected. Another question is whether there will be a buildup of the middle class in emerging economies like China. It's not just the U.S. that has an obligation to stimulate the economy. Have we reached the bottom? Stock markets coming off lows don't move in a straight line but like a staircase. Question is has the economy bottomed? Will profits move higher? Consumer savings rates have moved higher that signals that economic growth might move slower in this recession.

Black Rock: Bob Doll, Vice Chairman, Director
A number of positive factors have helped push stocks higher in recent weeks. These include expected positive results from the bank stress tests, a revision to mark-to-market accounting requirements, banks' desire to repay their TARP funds, a reinstatement of the uptick rule, declining market volatility, an increase in commodity prices and, not the least, some signs of healing in the credit markets.

Still, a number of economic risks remain, most notably in the global consumer and banking systems. Individuals around the world have largely stabilized their spending levels since the spending declines of late last year and early 2009, but there is still a risk that the heavy job losses that have occurred over the past several months will translate into a further retrenchment in spending. Likewise, although some banks have recently reported stronger-than-expected earnings, many banks continue to be undercapitalized and the banking system as a whole remains fragile.

On balance, our view is still that the global economy is in the midst of a severe and dangerous recession, but, importantly, the massive policy initiatives around the world have begun to bear some fruit. The dramatic interest rate cuts, spending increases, tax cuts, capital injections, bank rescues and plethora of new government programs have all helped to generate some relatively improved economic data. Looking ahead, we believe economic weakness will continue and expect a small gain in world economic growth by the third quarter of this year. We also expect to see positive levels of growth in the United States at some point in the second half of 2009.

The recent rally in stocks has brought the S&P 500 from a low of 666 in early March to a current level of 870-- a gain of 30%. When the S&P was at 666, markets were forecasting outright depression conditions, but now are pricing in a severe recession--an environment we believe is more likely. At the beginning of the year, we believed a year-end target for the S&P of around 1,000 was a reasonable expectation. From early March, stocks would have had to have risen by around 50% to meet that goal; today, they need to increase by around 15%.

We still believe a 1,000 level is an achievable year-end target. From a valuation perspective, we believe stocks are still attractively valued, but significantly less so than they were six weeks ago. Over the short term, we expect stocks will encounter technical resistance at around the 880 level. As such, we would not be surprised to see some back-and-forth in the markets, with some regrouping in the 750 to 850 range, until we see clearer signs of economic improvement.