Hints of a market nearing bottom

In fact, Bill Dodge, chief investment officer at Delaware Investments in Philadelphia, thinks investors are going to be surprised when they see the improvement in earnings. "This time business has been aggressive at managing inventories and employment against the business environment," he says.

"Every bear market is different, and this time the earnings are improving and the market is the trailer to the car – it's usually the opposite."

Unlike at some other moments in history, many market watchers don't think a single move will cause the markets to shift direction. The Fed, for instance, could lower interest rates again.

But Donald Straszheim, president of Straszheim Global Investors in Santa Monica, Calif., thinks that would be a mistake.

"The problem is not that interest rates are too high, or we don't have enough fiscal stimulus," he says. "The problem is a lack of confidence and just the process of unwinding the earlier bubble."

One development that could improve the investment climate will be when CEOs have to start certifying their company's financial results, beginning on Aug. 14. Congress has also approved criminal penalties for executives who knowingly sign statements that are false.

"It lifts some of the uncertainty," says Gary Gensler, author of "The Great Mutual Fund Trap: An Investment Recovery Plan." "Now, CEOs will have their attention focused on the possibility they can go to jail," says Mr. Gensler, a consultant to Sen. Paul Sarbanes (D) Maryland who authored the legislation.

Still, other market observers see worrisome signs in the economy and corporate earnings. "The durability of the recovery is still questionable," says Mr. Straszheim, former chief economist at Merrill Lynch & Co.

With the stock market tumbling over the past six weeks, Straszheim, who thinks the market bottom is close, says the possibility of a double-dip recession has certainly increased.

"That's why to me the economic stats are more important than usual right now," he says. On Wednesday, the government will release the advance numbers on second-quarter growth. Later in the week, reports are due out on construction spending and July unemployment.

There's still plenty of pessimism around. Peter Schiff, president of Euro Pacific Capital in Newport Beach, Calif., is convinced the economy is not recovering from a downturn but preparing to go into a steeper one.

"The big problem is the extreme level of debt," he says, envisioning a gloomy scenario that includes personal bankruptcies and pension funds destroyed. He predicts the Dow Jones Industrial Average will plunge to 5,000.

This view is in the minority, however. "After every decline we see a snappy recovery, and then we go into a wide trading range for years," says Ralph Acampora, a market analyst at Prudential Securities. "This will do the same."

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