Fasten your safety belts: We're in a market correction. A growing number of Wall Street experts are convinced that a stock market correction has begun, although they clearly don't expect the downturn to take on tragic proportions.
For example, Elaine Garzarelli, well-known quantitative analyst with Lehman Brothers, considers recent volatile market days the start of a "normal" correction.
But she believes that a "worst-case" decline would be only about 7 percent on the Dow Jones industrial average.
"Then, in three weeks or a month, the market will head up again," she added. "Right now, I'm buying stocks, for the market is still undervalued when viewed in the context of corporate profits."
A more pessimistic view is taken by Michael Metz, chief investment strategist with Oppenheimer & Co., who sees trouble in this correction, which "will take place in a gradual, orderly fashion through year-end."
Unload stocks you've considered selling in the past, Metz said. Get off margin as well. "This market has overly high expectations for corporate earnings and is dependent upon the flows of mutual funds," Metz said. "That makes it vulnerable."
The market will drop a little somedays, a lot other days, but the downward direction is what matters, according to David Shulman, equity strategist with Salomon Brothers. Still, he expects a decline of no more than 10 percent.
"Just because savings yields are so low doesn't make everything terrific for the market, as some people think, for I just don't see any corporate earnings growth," said Shulman, who recommends a portfolio of 25 percent cash, 45 percent stocks and 30 percent bonds. "Be cautious and hold more cash, because the risk isn't worth it."
Such caution is not to be found across the board, however. Dennis Jarrett, chief market analyst with Kidder Peabody, sees no evidence of a significant correction and believes that market dips offer a buying opportunity.
He's not worried by short-term downward movement, and his model portfolio is 70 percent stocks and 30 percent bonds.
"This October could be a better month than people believe," said Jarrett, who foresees continued anemic economic growth and relatively few investment options because of low interest rates. "Investors with a three- to five-year horizon should be patient so they can benefit from the leadership of small-capitalization stocks."
Despite all the cautions about a market that may have run out of steam, at least temporarily, there are investments worth considering. But there is also a divergence of opinion about them.
Garzarelli believes that consumer durables will outperform the economy. Her favorite groups include automobiles, appliances, leisure, residential construction, building materials, machine tools, diversified manufacturing and steel.
Some specific recommendations of Lehman Brothers are General Motors, Whirlpool, Halliburton and USX-U.S. Steel Group.
"I would not, however, be buying drug, tobacco or food stocks, for their profit margins will be squeezed," Garzarelli warned.
Her opinion isn't shared by Metz, who heartily recommends drug, tobacco and food stocks because he believes the market has greatly overreacted to their problems.
His stock picks include Sara Lee, Campbell Soup, Philip Morris, Eli Lilly, Schering-Plough and Abbott Laboratories.
He is also confident about financial stocks like Capital Holding, Jefferson-Pilot and First Chicago.
"Invest with your head, not your heart, and don't get overwhelmed one way or another," Metz said.
Shulman is still high on cyclical stocks, banking on the economic recovery. Ingersoll-Rand, Parker-Hannifin, Trinity Industries, Eaton and General Motors are selections. In energy, he likes Tidewater.
Among health-care stocks, he favors U.S. HealthCare, because HMOs should do best under the new Clinton programs.