After wild week in markets, experts split on what to do next

By Tomoeh Murakami Tse
Washington Post Staff Writer
Sunday, May 9, 2010

NEW YORK -- Just as small investors were finally returning to U.S. stocks, the market exploded in a wild week of erratic trading that drove major stock indicators back into the red for the year.

The whipsaw has left people of two minds: Some investment professionals are urging caution. They say the market may be in for a steeper decline, noting that U.S. stocks have surged nearly uninterrupted for 14 months. But others say the past week provided them with a golden opportunity to buy before another upswing.

"I see this as a clear-cut opportunity to buy stocks a lot cheaper than they were two weeks ago," said Harry Rady, chief executive of Rady Asset Management, a hedge fund and mutual fund management company. "We used up almost all of our cash in the last couple of days. We've been buying hand over fist."

Underpinning Rady's buying spree is his belief that debt problems in Europe will not derail the U.S. economy and that governments overseas will soon have a bailout plan finalized for Greece. "I wouldn't be surprised to see an announcement this weekend," Rady said Friday evening.

Others remain wary. They say that even as investors move past the computer-driven white-knuckle plunge of Thursday, when the Dow briefly lost almost 1,000 points, much uncertainty remains about the strength of the U.S. economy and those overseas.

"Clearly the market is being driven by macro concerns," said Daniel Berenbaum of Auriga, who focuses on technology shares. "Even though things are getting better, stocks . . . have possibly raced far ahead of that."

One thing is certain, analysts say: Brace yourself for a bumpy ride.

"Get used to volatility," said Jerry Webman, chief economist at OppenheimerFunds.

The Chicago Board Options Exchange's volatility index shot up last week, closing Friday at 40.95, its highest level in more than a year.

"Images in Greece of riots is disturbing," said Mark A. Coffelt, president and chief investment officer of Empiric Funds. "This is a crisis that is slowly unfolding. . . . I think a lot of investors are saying this could be the United States in a few years if we don't get our act together."

The investment mood this week was a scene reminiscent of the darkest days of the financial crisis.

Investors around the world pulled their money from stocks, junk bonds and other risky securities. Oil prices tumbled. Meanwhile, gold, seen as a safe haven for investors, rose to its recent highs.

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