Bear-stricken Wall St bets '09 will be a bull year

By Leah Schnurr and Rodrigo Campos - Analysis

NEW YORK (Reuters) - Wall Street is betting a new U.S. president and a fresh stimulus package will prod stocks higher in 2009, following a year most investors would gladly forget.

Investors are expecting gains of as much as 10 to 20 percent next year, partly reversing a dismal 39 percent drop in the S&P 500 in 2008 as trillions of dollars that have been sitting on the sidelines are plowed back into the markets.

Signals from President-elect Barack Obama that he and his team will be ready to hit the ground running have boosted confidence that the government will do whatever it takes to tackle the year-long recession, prompting hopes of a so-called "Obama rally" in stocks.

While no one is expecting a V-shape rally straight to the top after markets were pummeled this year by frozen credit markets and a shrinking economy, analysts are optimistic markets will make sustainable gains.

"You've got expectations for earnings very, very low; you've got low valuations in stocks; and you've got a catalyst for political change," said Chris Orndorff, managing principal and head of equity strategy at Payden & Rygel in Los Angeles.

"We will see the bottom in the first quarter and I think the rally will continue on throughout 2009. I think 2009 could be a very strong year for stocks," said Orndorff, who expects the S&P 500 to recover 20 percent next year.

Analysts currently expect a 1.2 percent fall in fourth quarter earnings followed by a 9.5 percent drop for first quarter results, according to Thomson Reuters data.

Amid the low expectations, Obama has said signing a major economic stimulus package will be his priority when he takes over the presidency on January 20. The package aims to generate 3 million new jobs and could cost $775 billion or more.