The market's wild swings are expected to continue through the summer, analysts say, but investors should take advantage of the volatility instead of fearing it.
"There's no reason to think these 100, 200-point swings won't continue," Rob Brown, chief investment officer at Genworth Financial Asset Management, told CNBC.com. "That provides an investment opportunity."
The markets were roiled all week in a tug of war between better-than-expected corporate earnings and almost daily headlines of trouble in the mortgage and credit markets. Analysts believe these same troubles will plague the markets next week.
"The catalysts are going to continue to be the headlines," said Mark Roach, portfolio manager at Dreman Value Management. "Subprime is at the top of the page, as well as private equity deals. We've had some excesses in mortgage lenders and that will have to shake out."
"The average American is up to their eyeballs in debt," said Greg McCoach, senior analyst with The Mining Speculator. "We're now seeing problems in the real estate and refinance markets, which have kept our economy going for the last five years. If that gets worse, interest rates will have to go up and I think we'll see a recession of some sort."
Shed Weak Sectors
As the markets fluctuate back and forth, many analysts say investors can take advantage of this opportunity to trim certain positions on good days and pick up promising investments on the dips.
"Start by shedding the weakest sectors, such as home builders, mortgage lenders, investment real estate, REITs, most banks and brokerage firms and companies that depend most heavily on these industries," advises Martin Weiss, senior editor of Money and Markets.
Weiss recommends investors consider exchange-traded funds that track foreign stock markets and foreign currencies. He says the Rydex commodity-based ETFs offer ways to play that strategy.
"Even if every stock market in the world goes down, there's almost always at least one major currency that's rising," Weiss noted in a recent "Crash Alert" report.
Before the volatility set in, large blue-chips helped propel the Dow to close above 14,000 for the first time on July 19. James Hardesty, market strategist at Hardesty Capital Management, still thinks two Dow stocks are good buys - Johnson & Johnson and Microsoft .
"Johnson & Johnson is in the right industry," said Hardesty. "The baby boomers are getting older and it's a broadly diversified healthcare services company. It pays a pretty good dividend to boot."
"Microsoft has been a sleeping giant," Hardesty said. "It's been waiting for new product and now we have Vista. As Vista is adapted, it will make obsolete basically all the computers that are currently in place."
Hardesty Capital Management owns both Johnson & Johnson and Microsoft for individual clients.
Dreman's Mark Roach sees value in chickens - that's right, chickens. Roach recommends Pilgrims Pride and Sanderson Farms . "We think that the market has overreacted to some rising feed costs and there's opportunity for investors to make money longer-term," said Roach.
The Dreman Value Small-Cap Fund owns Pilgrims Pride and Sanderson Farms.
Greg McCoach recommends investors adopt a defensive stance and buy Yamana Gold . "A quality gold stock is really the place to put some money at this point," said McCoach. "Yamana is currently trading at $10 a share. This is a quality gold producer that is still a good value and should do very well.
McCoach owns Yamana Gold.
Don't Fear the Fed
Next week, Wall Street will get the latest read on productivity and costs, consumer credit, wholesale trade and chain store sales. The Federal Open Market Committee also meets next week and will release its decision on interest rates Tuesday afternoon. Analysts are not expecting any shocking revelations.
"They're going to say a lot of nothing," Sara Nunnally, editor of Material Profits, told CNBC.com. "I don't think the Fed will do much of anything. I think they will assure us the economy is doing okay and they don't need to touch it."
"I think they will stay put for at least six months," said Michael Zhuang, president of MZ Capital Management. "So far, there's no evidence the subprime crisis has spilled over to other sectors of the economy."
While McCoach agrees the Fed won't change policy next week, he believes the FOMC will have to reconsider standing pat in the fall.
"The dollar index briefly touched 80, which was at its all-time low," said McCoach. "The pressure on the dollar to the downside is starting to cause problems for investors who have held dollars and this will put pressure on interest rates to move up. The Fed doesn't want to raise interest rates, but they'll have no choice."
Corporations reporting next week include Cisco , Sprint Nextel , Dow component American International Group and News Corp. .
Phyllis Burke Goffney is a news editor at CNBC.com. She can be reached at firstname.lastname@example.org.