Small-caps and foreign stocks show some promise.

With an ugly year of stock returns behind us, many investors came into this year with a high degree of fear. Ironically, when investors are quite worried or fearful, stocks tend to perform well going forward. When money is flowing freely and greed is high, stock markets tend to go down soon after--such as last year.

People fear a significant slowdown in the economy, or worse--a recession--which in turn leads to reduced consumer confidence, and that cuts consumer spending and company earnings.

However, investors have already anticipated and responded to these issues last year by taking the S&P 500 down 9 percent and the Nasdaq down 39 percent. Combine this with earnings …