Wild Day on Wall Street Ends With Dow up 150

Aug. 1, 2007 — -- Watching stock prices these days can make anybody a bit queasy.

First, they are up drastically. Then a big fall. Then up. Then down.

The roller coaster ride got even more confusing today, as all the markets jumped from positive to negative and back again all day long.

It was enough to make one's head spin.

So, what should investors do during this volatility?

"The guys on Wall Street are losing sleep. Some of them deserve to, because they took on way too much risk," said Mark Vitner, senior economist at Wachovia. "Folks on Main Street should not lose much sleep. They can afford to sit back and wait."

Vitner said that the economy is still in pretty good shape, and that the odds of a recession are very small. There is some weakness in the housing market as the nation deals with a rising number of mortgage defaults, but he said, for the most part, the economy is holding up well.

"Over the long-term, this is nothing but a blip," Vitner said. "It is something that will be contained to the summer of 2007, and we probably won't think that much about it come Christmas time."

Gary Schatsky, a financial adviser in New York, said that, for the typical investor, this is a "wake-up call" that markets don't always go up.

"Investors tend to have short-term memory, and forget about past market declines," Schatsky said. "Investors need to think objectively and subjectively about their holdings.

"Objectively, they need to assess if they can afford to take a risk ... [they] should consider age, income, spending ... [and] ability to replenish assets. Subjectively, how would you feel losing money? Will you lose sleep over it?"

Finally, Schatsky added, "Judge where you're getting your financial advice. ... Is it from someone getting paid to sell a product, or from an impartial financial adviser?"

It was a tough day to figure out on Wall Street.

The Dow Jones industrial average started the morning with a quick rally, jumping up 61 points by 9:36 a.m. Those gains eroded in minutes. By 9:49 a.m., the Dow was nearly 38 points below the open. At 10:20 a.m., it was back up. By 11 a.m., down again.

And so, that's how it went all day long, with the Dow finally closing up 150 points.

Such volatility has not been seen on Wall Street since March 2003, when the war in Iraq started.

The market's wild ride stems from fear and uncertainty.

"I would say all this volatility means investors are very uncertain as to the direction of the economy, and whether the subprime [housing] crisis is going to spread to the rest of the credit markets," said Jeremy J. Siegel, a professor of finance at the University of Pennsylvania's Wharton School of Business.

"The fear is, actually, that these credit problems that we see [are] going to spread to the rest of the economy and shut down the credit markets, not only with home mortgages but with auto lending and credit cards across the board," he said.

Sam Stovall, chief investment strategist at Standard & Poor's, said that, in the near future, the market will be driven by "fear and greed."

"The volatility says to me that the bulls and bears are very adamant about their positions," Stovall said. "The bulls say that we have good economic growth ahead. The bears are convinced that the housing situation, as well as the subprime woes will likely lead to a recession."

Stovall added that the market tends to anticipate changes in the economy by about six to nine months.

"So, I think investors are wondering right now: Is it simply a fearful pullback, or is it really a precursor to economic slowdown that will be much more than simply a soft landing?" he said. "If you think this is a bumpy road, hold on tight."