Five Bears Who Turned Bullish During Five-Year Rally

By: Steven Russollilo

The bull market in stocks over the past five years has won over plenty of skeptics.

In March 2009 the gloom-and-doom crowd was out in full force. Stocks were in free-fall, bearish sentiment was at record highs and the notion of even calling the bottom was one that few market participants dared to make.

Much has changed during the past five years.

Many of the bears have retreated into hibernation since March 9, 2009 as the Dow Jones Industrial Average rallied 151%, which ranks it fifth in gains among the 32 bull markets since 1990. One by one, these skeptics have shifted their stance on stocks; some threw in the towel on their bearish prognostications, others slowly turned more optimistic.

Here’s a look at five one-time market bears who have since reversed their gloomy views, and what they’re saying now.

Nouriel Roubini

Nicknamed Dr. Doom for accurately forecasting the 2008 crisis, NYU economist and professor Nouriel Roubini started turning more optimistic in February 2012. On the state of the stock rally, Roubini’s firm said: “We’re a believer; we’re celebrating. We think the rally has legs.”

The caveat is on that same day, Mr. Roubini responded on TwitterTWTR -2.37% to calls questioning his new found bullishness: “Indeed in H2 2012 the rally will fizzle.” Still, the notion that Mr. Roubini wasn’t as gloomy as he had previously been marked a turning point for one the market’s well-known bears.

Now: Dr. Doom is no longer Dr. Doom. In fact he’s been trying to abolish the nickname, saying he’d prefer to be called “Dr. Realist.” In an article earlier this month for Project Syndicate, Mr. Roubini outlined the silver linings in the turmoil impacting many of the emerging-market economies. And for months he has been optimistic about the global economy and U.S. stocks.

David Rosenberg

In the clique of market bears, few had been as reliably and depressingly dour as David Rosenberg. Mr. Rosenberg had been a market Cassandra for years: He was bearish before the financial crisis of 2008 and remained bearish well afterward. So it caused a mini-sensation within financial circles in June 2012 when Mr. Rosenberg—the former economist at Merrill Lynch & Co. who’s now at Canadian money-management firm Gluskin Sheff—wrote a morning commentary titled “Parting of the Clouds?”

While he claimed he wasn’t defecting from the dark side, he also maintained that he was more optimistic at that point than he had been in more than a decade. “I’m so excited I just can’t hide it,” Mr. Rosenberg wrote. “But for now, I’m keeping the powder dry.” In mid-2012, he upgraded his outlook for the U.S. economy and urged investors to buy more stocks and dump Treasury bonds, citing an improving labor market, among other things.

Now: Mr. Rosenberg acknowledged late last year that even though stocks were looking frothy, they also weren’t poised to peak. “One of the problems for the bears is that everyone seems to acknowledge that we are due for a correction,” he said. “But it may well be this near-universal perception of a correction means that we may not see one.”

And Mr. Rosenberg, who previously worried about deflation as a major concern for the U.S. economy, has changed his tune on that as well. He sees inflation making a return this year. “This deflation, disinflation, benign inflation story which seems to be everybody’s mindset is really yesterday’s story,” Mr. Rosenberg told Businessweek last month. The Federal Reserve “is carrying out the mother of all reflationary policies. My bet is that eventually the Fed will get what it wants, and then some.”

Adam Parker

Morgan Stanley’s Adam Parker, previously one of Wall Street’s more notable bears, joined the ranks of bullish stock-market strategists in March 2013 with a call that the rally in U.S. stocks had plenty of room to run. That call marked the first time he called for stocks to move higher in any year in his tenure as Morgan Stanley‘sMS +1.16%strategist dating back to 2010.

“Given our economics team’s view of improving U.S. growth and ample liquidity still being provided by the Fed, it is hard to see what causes a major market correction,” Mr. Parker wrote in a note to clients one year ago.

Now: Mr. Parker’s optimism has increased so much to the point where late last year he channeled his inner Bob Marley, sayinghe wasn’t worried about a thing. He forecasts the S&P 500 will hit 2014 in 2014, a call that transitioned him from being Wall Street’s biggest bear to its biggest bull.

“The only thing people are worried about is that no one is worried about anything,” Mr. Parker wrote in his 2014 outlook. “That isn’t a real worry.” At some point the market will suffer a correction, but the factors that could trigger such a move aren’t problematic, he says. “In order to time the impossible, the inflect, we remain focused on what could cause fear about a materially lower earnings trajectory, or even what could introduce volatility into the earnings estimates,” he says. “The answer is — not much right now.”

Meredith Whitney

Meredith Whitney, the banking analyst who accurately predicted CitigroupC -0.18%’s woes prior to the financial crisis, turned bullish on U.S. stocks in March 2013.

Ms. Whitney had been known for her bearish views on the market, and in particular bank stocks. But when asked whether she would buy stocks at a time when the Dow Jones Industrial was first hitting new highs a year ago, she said “without a doubt.”

“I have not been this constructive, this bullish on the U.S., on equities in my career,” Ms. Whitney said in an interview on CNBC.

Now: In October 2013, Ms. Whitney, one of Wall Street’s best-known and most controversial research analysts, closed her firm’s research business, following the departure of numerous clients and employees. WSJ reported Ms. Whitney planned to start a hedge fund.

Richard Russell

Richard Russell, a newsletter writer who has been penning the “Dow Theory Letters” since 1958, advised his clients in March 2013 to buy stocks, an about face for someone who had been pretty bearish for much of the rally.

“Yes, I know that this market is uncorrected during its long rise from the 2009 low, and I know that there are risks in buying an uncorrected advance that is becoming uncomfortably long in the tooth, but my suggestion is that my subscribers should take a chance (after all, Columbus took a chance),” Russell wrote.

“By taking a position in the market, you’ll be casting yourself on the side of the optimists, and you’ll also be casting your vote on the side of Ben Bernanke and the Feds,” Mr. Russell said. “Besides, it’s fun to be able, for once, to place yourself on the cheerleaders’ side of the U.S. markets, and it makes sense to be on the side of America’s Federal Reserve.”

Now: Mr. Russell, 89, has since reverted back to his gloomy ways. “”In the big picture, I continue to believe that we’re in a world depression,” Mr. Russell warned his 12,000 subscribers earlier this year. “I think we’re at the inflection point where the primary bear trend is overcoming the frantic action of the Fed.”

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To be sure, not all bears have turned cheerleaders. In fact, one gloomy prognosticator remains steadfast in his bearish ways.

Portfolio manager John Hussman isn’t ready to emerge from hibernation, but his bearish stance have cost his investors dearly.

Hussman Strategic Growth, launched in 2000, has shed an average 1.3% a year over the 10 years through February, while the S&P 500 gained an average of 7.2% a year, according to Morningstar. The average long-short equity fund rose 5.6%. The fund’s assets have shrunk to $1.3 billion from a peak of $6.7 billion in September 2010.

The fund remains fully hedged. “I don’t think people appreciate how eager I would be to lift our hedges if the evidence supported it,” Mr. Hussman told WSJ earlier this month.