Which way next?

Mutual-fund investors lined up at the investment elevator for 2002 want to know: When the door opens, will the car be heading up - or back down?

The consensus view, for now, is that the new year will deliver nominal growth - at least in the second half of the year.

Returns, by this reckoning, will be up - but minimal.

But the consensus may be way off. Bulls, such as Charles Kadlec, chief investment strategist for mutual-fund firm J. & W. Seligman, see far better than expected returns in 2002. Mr. Kadlec envisions double-digit gains in "all major stock indexes."

Before you spend your newfound gains, however, you might want to exercise a little caution: Bears, such as George Jacobsen, chief investment officer and president of financial firm Trevor Stewart Burton & Jacobsen, believe current market gains add up to a sucker's market - a "bear trap" that gives the appearance of growth, but may not deliver it.

So how to characterize the market in 2002? Both the bull and bear arguments are very plausible. And there are many legitimate positions to be found in between.

James Stack, editor of InvesTech, a market newsletter published in Whitefish, Mont., has been perhaps the most famous bear of the past decade. No irrational exuberance for Mr. Stack, thank you.

At a time in the 1990s when just about every investor and small saver in the US was throwing money into the stock market - especially at go-go technology stocks - Stack was waving red flags and warning against what he felt was an inevitable crash.

The crash - the downturn - wracked equities markets in 2000 and 2001. Stack, who was often scoffed at for missing the huge market runup, escaped most of the market meltdown.

But look who is now becoming more optimistic. Being called an out-and-out bull makes Stack slightly nervous. But as of this writing, Stack has about 80 percent of his portfolio in the equities market, based on monetary easing by the Federal Reserve, as well as a number of technical factors.

"Be cautious and watchful," he says, but the "potential" for a bull market looks promising.

If the redirection of Stack is any indication, 2002 should turn in results far happier than those of 2001.

To post gains last year, you had to be in small-cap value funds, REITs, small-blend funds, or mid-cap value stocks. Or else be hunkered down in bonds.

Small-cap value led the pack for the year, up 17 percent according to preliminary analysis by Morningstar Inc., the Chicago-based fund tracker.

REITs (real estate funds) were up 9 percent; small blend funds were up 8 percent, and bond funds were virtually all in the black.

The big losers: tech funds, down a stunning 38 percent. Large-cap growth funds, the darlings of most mutual-fund managers, were down about 24 percent. And anything international or foreign was in the doldrums, with European funds down 21 percent, and Japan down 30 percent.

Emerging-market fixed instruments led the bond pack, up 11 percent. Yet few investors owned many of them, owing to their risky nature.

On the fixed-income side, most bond categories posted red ink. Virtually all types of municipal bonds hit the skids.

Finally, the old adage that the past years winner's may be the new year's losers warrants a reminder. In the fourth quarter of 2001, something interesting happened: On the stock side, large-cap growth stocks came to life, up 15 percent. A trend?

And overall, will growth persist?

"The market recovery that has been under way since late September is for real," says Al Goldman, chief market strategist for investment house A.G. Edwards, in St. Louis.

Mr. Goldman, too, sees the underlying economy and stock markets starting to rebound by spring - barring more terrorism - with the Dow and the S&P 500 up 12 percent or better by year's end, the Nasdaq perhaps higher.

Goldman likes the chip sector in technology, deep-water drillers and service companies in the energy sector, banks, insurance and mortgage firms, and, to a degree, pharmaceuticals.

Both small-cap and mid-cap indexes should continue to rise, Goldman says, but on a very selective basis.

Still, with the Dow up 23 percent since Sept. 21, and the Nasdaq composite index up 41 percent at this writing, there could be small corrections along the way, Goldman says. "We've come a long way very fast," he says.