Now is not the time to panic

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NEW YORK (CNNMoney.com) -- Oil's above $143 a barrel. The dollar continues to weaken. Second quarter earnings, especially in the financial sector, are going to stink. And the employment report for June, due out this Thursday, is expected to show another month of job losses.

These are, to put it mildly, some uncertain times for Wall Street and Main Street. With stocks edging close to bear market territory, the first half of the year is coming to an end none too soon.

But this is not the time to panic. Yes, this was a brutal first half of the year. Yet, experts warn that the worst thing an investor can do when the sky seems to be falling is to act like Chicken Little.

"With investing, when you get afraid that's when you make mistakes. It's time to be calm," said John Norris, managing director for Oakworth Capital Bank in Birmingham, Ala.

"Now is not the time to follow the herd mentality. We expect commodities to give up some of their historic gains in the second half of the year. Investors should continue to play it safe," Norris adds.

By safe, Norris doesn't mean sticking all your cash in a coffee can in the pantry - although the smart investor would be wise to have some money readily available. Norris is advising investors to look at large-cap firms, especially non-cyclical stocks like food, beverages and household products companies.

And one fund manager said that the recent turmoil presents an opportunity to buy some of the most beaten down stocks.

"We took the opportunity to buy a few things in the financial sector last week," said Ted Parrish, co-manager of the Henssler Equity fund. "Even with all the negativity, there are some values. The writedowns may continue but we think the worst of them may be over."

Parrish added that he's also been buying some consumer stocks lately, including GPS maker Garmin (GRMN) and cruise line operator Carnival (CCL), since he thinks the sell-offs are overdone.

Still, investors should brace for more volatility ahead. July could be another tough month as most corporations will release their second-quarter results. And they are not likely to be pretty.

In fact, they might even be worse than forecast. Subodh Kumar, an independent market strategist, warns that analysts have not cut earnings estimates for the second quarter by a wide enough amount to reflect current market conditions.

"Earnings have been weak for almost 12 months now but analysts have only been cutting one quarter at a time and not focusing on overall trends," he said. "They are taking the salami approach, slicing a little bit off here and there. And that's keeping the markets volatile."

With that in mind, Kumar said that over the next two months, he thinks that stocks could fall another 5% before finally bottoming.

But there is a bright side to this. Kumar said that after the second quarter, analysts may finally begin to reduce their outlooks for the next few quarters. That could result in "drastically low" targets that companies can top if the economy bottoms out later in the year and into 2009.

How realistic of an expectation is that though?

Norris thinks that the economy won't improve dramatically anytime soon. But he doesn't think it's going to get significantly worse either.

"The economy is not going to feel pretty. It may be like the latter half of the 1970s," he said. "But I don't expect the economy to go into some huge swan dive either. There's nothing out there to suggest that."

Issue #1 - America's Money: All this week at noon ET, CNN explains how the weakening economy affects you. Full coverage.

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