Anxiety appears to be easing its stranglehold on Wall Street

Here's an optimistic thought for the new year: Stocks might go up.

So say a number of professional investors and economists, who argue that stock markets have probably hit bottom. The debate now is whether markets are poised for a recovery or if they are merely past their worst losses.

For many investors, just getting 2008 over is significant. With the Dow Jones industrial average down 34 percent, US stocks posted their worst annual showing since 1931. Foreign stocks were even worse: A popular Morgan Stanley index that tracks companies in Europe and Asia was down 45 percent.

For 2009, there are a number of factors that make a case for a recovery: economic stimulus spending from Washington and more confidence in housing and credit markets. As the government's efforts to jump-start the economy and credit markets kick in, Jeoff Hall, an economist for Thomson Reuters, predicted the Dow could gain as much as 14 percent and hit 10,000 sometime this year. It closed out 2008 at 8,776.39, and had already gained 3 percent on Friday to close at 9,034.69.

"An inability of the US and the global economy to come out of this funk in the next 12 months seems ludicrous," said Hall.

Hall also noted that a widely followed index of trading volatility, which often indicates the level of fear or nervousness in the markets, has declined markedly from November, when it peaked above 80, and closed Friday at 39.

"To me that says investor fear is abating," he said.

Not that there won't be cause for indigestion in the days ahead. James Swanson, chief investment officer at the Boston mutual fund firm MFS Investment Management, predicted the tide of bad news "will reach its bleakest peak in the winter of 2009." He said the economy in the first half of 2009 could contract by as much as 4 percent. But troubles in the housing and labor markets, Swanson said, will be offset by a lower cost of living, as prices for gas, food, and other necessities drop, as well as by an increase in government spending. In his outlook, Swanson did not give an overall prediction for the market's performance in 2009.

James Gaul, portfolio manager at local money manager Boston Advisors, sees the markets moving in fits and starts, at least early in the year. Investors should be prepared for early rallies to be followed by sell-offs until there's more clarity about the health of the economy, especially the housing sector.

"Assuming that housing stabilizes in the spring selling period, I'm mildly optimistic about what the stock market can do this year," said Gaul, who also did not predict where the markets would end up.

One of the general themes that drives the optimists is the widely held view that stock markets tend to recover well before the overall economy does. And with most economists predicting an end to the recession by 2010, it's logical then that stocks would turn in a good performance this year.

In its annual forecast, Standard & Poor's predicted the benchmark S&P 500 index would gain 20 percent over the year. Indeed, since the Wall Street powerhouse made that prediction just before Christmas, the S&P 500 has climbed 6 percent.

S&P chief investment officer Sam Stovall wrote in the company's outlook that the 20 percent prediction is "fairly conservative," citing how robustly stocks have rebounded from prior bear markets. In the first year of every bull market since 1932, Stovall said, the S&P 500 rose an average of 46 percent.

"When this bear market finally ends, history says be prepared for a fast and furious partial recovery," Stovall wrote.

At the more skeptical end is Ben Inker, director of asset-allocation for Boston investment firm GMO LLC.

First, Inker said, he's not persuaded that stock markets always recover before the economy does. Looking ahead, he predicted corporate profits won't be substantial enough to justify big increases in share prices. He thinks there is even a possibility that stocks will go down from here, as investors learn the extent to which high unemployment will cut into consumer spending and weaken the economy.

"I have a hard time seeing a large and sustainable rally on the back of unending bad news," Inker said. "You can rally for a while, but you would expect it to peter out."

GMO and its cofounder Jeremy Grantham had been among the market's loudest bears. In September the firm reduced stock holdings in some of its large mutual funds to just 45 percent, down from its usual level of 65 percent.

But since the market crash in the fall, GMO has waded back into the stock market, pushing its holdings to about 55 percent. Inker said it's possible the Dow could rise 5 to 10 percent by the end of 2009 if the economy starts to improve, or more if a full recovery is clearly underway. For now, the firm is buying individual companies with little debt and stable earnings rather than making a big bet on the direction of indexes, he said.

Ross Kerber can be reached at kerber@globe.com.