The old worries about struggling consumers and sick financial institutions arose again last month. And shocking increases in oil prices burned away the tentative calm investors exhibited after the Federal Reserve helped to rescue the Bear Stearns Cos. Inc. from a sloppy collapse in mid-March.

The combination of recessionary and inflationary forces began to erode the 11 percent gain that the Standard & Poor's 500 recorded after the Fed showed investors it would not take a chance on financial calamities.

Now, many investors are awaiting more economic data before making their next move.

William Baird chief investment strategist Bruce Bittles is like many, watching for a clearer view of the economy's outlook. In early 2006, he pulled back on stock exposure to 55 percent from 60 percent and put 10 percent - a relatively high level - into cash. He plans to keep that portfolio intact, in what pros would call a defensive posture, until the presidential election.

Generally, he said, markets are difficult to interpret while promises are made and perhaps stimulus poured onto the economy. Then, after the chatter, a clearer read on the future emerges.

Wait and see

Throughout the world, Merrill Lynch & Co. Inc. is picking up a similar wait-and-see attitude as investors detect worrisome signs that alternate in pointing to recession and inflation - a combination that is tricky to fight with interest-rate changes by central banks because the cure for one can aggravate the other.

"Given the recent rebound in equities, the surprise is that risk appetite has not improved more than it has," said Merrill global equity strategist Karen Olney as she reported the results of the firm's recent survey of global fund managers. Merrill takes the pulse of professionals throughout the world each month, and in early May it found them somewhat less worried about recession and more so about inflation.

A relatively large number of pros were stockpiling cash as a buffer against troubled markets.

About 28 percent said they were holding more cash than usual. Only 15 percent said stocks were cheap now. But they also are not eager to buy bonds. Because bonds are yielding so little at a time when inflation expectations are high, about 80 percent think bond yields will be higher a year from now.

That, of course, does not bode well for people who are buying bonds now. When inflation surges, bond interest rates generally go up to give investors the income they expect to pay for higher prices. As that happens, old bonds - with lower interest rates - are no longer attractive and the prices consequently fall.

Pimco bond manager William Gross said in a report last month that Treasury bonds were not attractive because they do not pay enough to cover inflation cost.

Global inflation at 7%

Globally, he said, the inflation rate is 7 percent; he believes the U.S. rate is actually higher than the roughly 4 percent reported over the last 12 months. For investors, this raises a challenge if they are nervous about stocks. With bonds, their money is not growing enough to help them pay extra for food, fuel or other items with rising costs.

But many experts are leery of stocks throughout the world.

"European economic growth risks continue to rise, driven by a combination of factors including a slowing U.S. economy, strengthening euro, falling house prices in the U.K. and peripheral Eurozone, tightening credit conditions and slowing corporate profits," Morgan Stanley strategist Abhijit Chakrabortti said in a recent report. And Morgan Stanley European strategist Teun Draaisma suggests investors sell into strength, holding on to defensive sectors such as energy, pharmaceuticals and utilities.

With emerging markets needing customers in Europe and the United States, Morgan Stanley emerging-markets strategist Jonathan Garner is telling clients to take advantage of the 12 percent gain they have had there since January, and cut back exposure a little. Yet with the economies in emerging markets strong, he still says investors should overweight emerging markets about 2 percent in portfolios.