It is a good time to be a US stock investor for the long term - if you can ignore the noise erupting every few hours. That is the advice from some money managers, who are taking the opposite tack of many who want to avoid the turbulence. Instead, they are confronting the volatility head on, adding to stock allocations rather than standing pat.
Much of their increased optimism stems from a belief the US economy is likely to avoid another recession, even as a European downturn seems more likely.
Because of that, they believe the euro zone's debt crisis, which has kept the market on its toes for months, will recede as the main driver of market direction. A Reuters poll of 12 US fund companies showed managers in December boosted equity holdings to their greatest percentage this year.
But for those worried investors who have been out of the market for a while, Shawn Kravetz, president of investment management firm Esplanade Capital, suggests starting small.
"You should start to deploy capital into the stock market gradually and, in the coming months if it's up, you keep doing it. If it's down, you get a little bit more aggressive," said Kravetz, who favours large retailers, including Lowe's, Target and Wal-Mart.
US economic data has improved in recent months. That is likely to help US companies continue to report healthy profits, among the biggest tailwinds for stocks in 2012. But there remain many reasons to be wary. Even optimistic money managers acknowledge that Europe's debt troubles are far from over and the fallout could still extend to the United States, especially the US financial system.
Cautious retail investors overall still prefer bonds and cash to stocks. Assets under management at all equity funds dropped by $186 billion for the year through December 12, according to Thomson Reuters' Lipper. For the same period, assets under management at all taxable bond funds rose by $69.8 billion.
The well-worn arguments about attractive valuation have not won the day in 2011. The benchmark Standard & Poor's 500 appears headed for another losing year, despite valuations that have not been this low in a decade.
The index is down 4.2 percent for the year, and stocks have been on a topsy-turvy path for months, showing strong gains one day, only to slump the next.