08/05/2011 01:44 EDT | Updated 10/05/2011 05:12 EDT

Stock market mayhem will likely be with us for weeks to come, experts say

TORONTO - As the Toronto stock market took a beating for the second straight day Friday, Sinny Abili quietly read a book on a bench in Toronto's financial district, a contrast to the frazzled Bay Streeters that shuffled past her.

The 26-year-old who moved to Canada from England three weeks ago said she is unfazed by stock market tumbles because she deliberately avoided investing in stocks and kept all her money in a regular savings account, even though it pays out little interest.

Being so close to the European debt crisis, which shook markets this week, made her want to turn away from risk.

"I've actually held off on investing any kind of money because I couldn't really see huge returns," she said.

"I'm going to leave it in a savings account for now where it's safe and when things become a bit more stable I'm going to invest it then."

On Friday, the S&P/TSX composite index closed down 217.96 points, after earlier falling as much as 500 points earlier in the day. The loss comes after the stock market took a 436-point shellacking on Thursday, its worst day in two years.

Experts predict a bumpy ride for investors as volatile stock markets with major highs and lows will likely be around for months as frightening hints of another possible recession begin to surface amid global economic uncertainty.

We've been there before — the last time about three years ago when the Wall Street banking crisis sparked a global recession and trillions of dollars in losses on the world's stock exchanges.

A stock market plunge in New York on Thursday saw Wall Street wipe out the gains it made for the entire year.

Besides ratcheting up anxiety among ordinary Canadians worried about the economic future, plunging stock prices also cut the value of pension plans, which hold hundreds of billions of dollars in stocks in their portfolios.

Experts advise investors not to panic, keep focused on quality stocks and try to ride out the storm of volatility, which should be around for months.

Sean Cleary, a finance professor at the Queen's University business school in Kingston, Ont., said market volatility will continue as long as investors can't shake fears that debt-strapped governments in Europe and the United States could squeeze the global recovery.

News late Friday that Standard & Poor's is downgrading the United States' credit rating for the first time in history is sure to add to the jitters.

S&P said it is cutting the country's top AAA rating by one notch to AA-plus. It said it's making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country's debt situation.

Some are concerned the economy could double dip — from recession to tepid recovery and then back into recession, once government stimulus programs end.

Cleary said volatile stock markets are a general sign that economy is not doing particularly well.

"We're probably in for at least another year of uncertainty," he said. "That tends to mean the economy is not going to start rebounding and jobs aren't going to start being recreated."

News out of the United States has been grim as the country recorded weak manufacturing numbers, lower consumer spending, and on Friday announced it added just 117,000 jobs in July, bringing the country's unemployment rate down one notch to 9.1 per cent.

Stocks slid Friday even though the job creation numbers were higher than the 80,000 economists had predicted.

KCM Wealth Management Inc. president Adrian Mastracci said the United States should be adding between 300,000 and 400,000 jobs each month to give consumers enough confidence to start spending money and boost growth.

Canada is well positioned to weather the economic troubles because of its resources, including oil, mining, and forestry. As countries like China grow and demand building materials, Canada stands to cash in. But the United States is still the largest buyer of Canadian goods, and some fear that country could be stumbling back into a recession.

"(Resources) will help Canada, assuming (buyers) still want the oil and commodities that we produce. Certainly the prognosis looks good for Canada," Mastracci said.

"(But) if the U.S. goes into a bigger slowdown than what they have right now, I can suggest to you that they're going to reduce the orders they buy from Canada so we're not immune."

Mastracci said regular investors can protect themselves by spreading their money across different countries, and buying a host of different investments like bonds, Guaranteed Investment Certificates or stocks that pay out dividends.

He said stock markets have fallen before and will likely fall again, so investors don't need to get riled up over the chaos.

"Stand back, look at the portfolio and say to yourself: 'Do I have the right stuff? Am I doing the right things? What should I be doing differently, if anything," he said.

"It's never too late to tweak a portfolio."

John O'Connell, CEO of investment company Davis Rea said stock market volatility can indicate economic slowdown, but recessions rarely materialize.

He said his firm is not forecasting a recession in the near future, adding that Canadians with money in stock markets can protect themselves by looking at stocks as long-term investments.

"People shouldn't have more money invested in the stock market than they feel comfortable with, and whatever they put in the stock market, they should be prepared to leave there for a good long time," he said.