Continued from page 1

“Even if the market looks appealing, the timing is a bit too early” to pile back into stocks, he said.

Among the reasons to remain cautious: Key bank lending rates declined in the wake of yesterday’s show of force by central banks, but they remain elevated far above levels considered normal and healthy. Also, major corporations like General Electric Co., GM and Ford remain mired in slowing sales and the choke of scarce credit.

Bill Gross, investment manager at Pimco bond fund, said the government moves show promise of eventually mending the banking system, but it is being overwhelmed for now by “a lack of confidence in the market and lots of fear.”

One major factor causing the big day-to-day swings in stocks is the “technical unwinding of asset positions in hedge funds,” which are having to cover losses in investments they bought on credit, he told Morningstar this week. “There’s forced liquidation of high-quality bonds, stocks and real estate,” he said, and that is “mandating lower prices” across the board.

“The financial system’s deleveraging much like it levered up for the last 20 to 30 years,” he said. That’s sending the economy into reverse, but “ultimately the global economy should recover in 12 to 24 months,” after a “significant recession” with “high unemployment and low levels of profits,” he said. “It’s not a fortuitous scenario.”

“We have seen worse stock market panics,” said Standard & Poor’s Corp. chief economist David Wyss, noting that the 42 percent loss in the S&P; 500 at the end of last week was exceeded by its 49 percent loss from 2000 to 2002 and its 48 percent loss from 1973 to 1975.

“It is approaching the size of those bear markets, however, and could get there quickly,” he said. “What is unique is the combination of the stock market panic and the credit market panic. In past crises, lending market activity continued even though stock markets plunged. This time, everything has locked up.”

Mark Arbeter, an S&P; technical stock analyst, said, “We believe the stock market is close to a major bottom” because of the climactic quality of the recent sell-off and because November, December and January are usually the best months for the market.

The market has gone through all the requisite phases of fear, panic, despair and despondency, he said.

“We think it is clear that we have seen panic and capitulation over the last couple of weeks. By the looks of some of my co-workers and fellow commuters, there was a look of despondency and depression on their faces this past week.”

Jack Bogle, founder of the Vanguard funds, said that in his 57 years in business, he’s never seen speculation and leverage driving the stock market like it is today.

“There’s twice as much stock trading turnover than 1929,” he told Morningstar, calling Wall Street “the winner” by collecting $600 billion a year in fees and commissions earned on frantic “wild and woolly” days of trading like those seen this year.

“The system is crying out for change, but I never expected change would be so abrupt, speculation so rampant, credit so easy, and credit standards so devastatingly low,” he said. “Unfortunately, the one solution we’re going to get is government intervention. Nobody thinks the government can do a better job, but they certainly can’t do a worse job. It’s the only body with any liquidity left. This is in fact the greatest financial crisis since the Great Depression.”

Despite the monumental obstacles facing the market, Mr. Bogle advised small investors to stick with their stock portfolios and not try to bail out.

“A sharp market decline is of course bad for sellers, but it’s good for buyers,” he said. “That’s the greatest time to invest.”