Hamburg money manager Peter Aleksandrowicz has been bracing for the worst.
For the better part of a year, Aleksandrowicz has been warning his clients about the risks of financial default in European nations, like Greece, Spain and Italy. He's worried about the growing U.S. fiscal crisis.
In response, he's steadily cut his clients' U.S. stock holdings to next to nothing, which made Monday's 634-point plunge by the Dow Jones Industrial Average easier to take.
"I'm not surprised this happened, and I won't be surprised if the next step isn't significantly lower," Aleksandrowicz said. "You've got to prepare yourself for more downside."
Thomas S. Quealy Jr., the chief executive officer at Nottingham Advisors in Amherst, isn't running for cover either, despite the Dow's biggest one-day point drop since December 2008.
While he thinks the stock market could head lower in the coming days, Quealy sees some positives for investors, from strong corporate profits and lots of cash in corporate treasuries, to what he considers to be reasonable stock valuations.
"The economy is slowing down, and I think this is a reflection of the realization that the economy is going to be growing more slowly going forward," Quealy said.
In many ways, Quealy said, the bill is coming due for a nation that has been running ever-growing budget deficits and has failed to come to an agreement on how to significantly reduce them in the coming years. The first part of that bill came due Friday, when Standard & Poor's lowered the U.S. credit rating.
"We've known we've had these issues out there," Quealy said. "What the downgrade really does is bring this to the forefront. The reality is we've got to deal with this."
Bruce Kaz, president of Courier Capital Corp., a Buffalo money management firm, said he doesn't expect a prolonged decline in the stock market unless global economic growth suddenly collapses.
He doesn't see that happening, though, and Kaz also sees some positives that could prop up share prices in the future, from still lower interest rates to the growing likelihood that the Federal Reserve will launch a third round of monetary stimulus to try to bolster U.S. economic growth.
"I'm sure we're going to see more stimulus now," Kaz said.
Anthony J. Ogorek, who runs Ogorek Wealth Management in Amherst, sees few similarities between today's market turmoil and the devastating market plunge in 2007-08. "It's not 2008," he said.
"The American financial system is much stronger. Global coordination between central banks is more effective, and personal and corporate balance sheets are in much better shape than they were three years ago," Ogorek said.
Monday, the first day of trading after S&P's downgrade, investors continued their flight to safety, pulling out of riskier stocks and bonds because of concerns the global economy will continue to slow in favor of perceived safe havens, such as U.S. Treasuries and gold. Gold prices topped $1,700 for the first time and closed at a record high of $1,713.20. The yield on the government's 10-year Treasury note fell to its lowest level since 2009.
"The market operates on fear and greed. It's easier to scare people than it is to make them feel greedy," Kaz said.
That extends to consumers, who have been scaling back their spending as incomes have stagnated, as well as companies, which have been reluctant to spend too much of the cash they've hoarded as profits have strengthened coming out of the recession.
"They haven't been willing to spend that cash because they're uncertain about tomorrow," Kaz said.
Still, Corporate America has been steadily gaining strength. The second-quarter earnings of the 500 companies that make up the Standard & Poor's 500 stock index have improved by an average of 18 percent. Profits have been stronger than analysts expected at about three-quarters of the companies that have released their earnings. And sales have grown by about 13 percent.
Those strengthening profits have created what Kaz and Quealy believe are attractive valuations for investors. The S&P 500 is trading at slightly more than 12 times its earnings, which is lower than its average of 18 over the past decade.
"The earnings just have been great," Ogorek said.
Aleksandrowicz, who has been bearish on U.S. stocks, said younger investors, with years to ride out the stock market's ups and downs, can find what years from now likely will look like good buying opportunities.
Ogorek said investors are looking to Washington for signs that Congress and the Obama administration can work together to ease the nation's soaring budget deficits and resolve prickly long-term issues, such as Social Security and Medicare funding.
"I think it's an emotional reaction to a confluence of political events, more than it is a commentary on the durability of our economy," he said.
Kaz agreed. "This is a really harsh reaction [to the prolonged debt ceiling debate.] They goofed up in public," he said.