Although equities are suffering their worst bear market since 1974, a growing chorus of fund managers and strategists are making the case for a return to stocks. The Morgan Stanley Capital International World Index has tumbled 28 per cent in the past year, while the S&P 500 index has fallen 26 per cent, battered by the rapid slowdown of US economic growth and evaporating corporate profits.

To put that in perspective, these are the most rapid one-year falls since 1974, when oil prices rocketed, inflation was rampant and economic growth hobbled. Before the oil shock, you have to go back to the Great Depression year of 1938 to find a worse year-on-year S&P decline, according to HSBC figures.

Bad as that seems, investors say that macro-economic conditions, stock market valuations and historic precedent all point to a recovery, though few are willing to bet the bounce will be as large as the decline.

A number of well-known analysts have moved in recent days to buy equities. Salomon Smith Barney has advised clients to buy more stocks on Tuesday, saying financial sector shares will be the next market leaders, even as they cut year-end targets for the major indices.

HSBC strategist Mr Peter Oppenheimer is another long-time bear who has recently become more positive about stocks. He points out that on occasions when the US market fell by 20 per cent or more, the average return in the S&P 500 in the following 12 months has been 32 percent.

Bears will protest that the difference this time is that 1999 and 2000 represented a bubble.

The bear market, this theory goes, is simply a return to historical norms in valuation, leaving little room for a quick recovery.