Stock market yo-yo -- despite economic problems, bargain hunters start shopping

This was Leo Dworsky's type of day. Wall Street was nervous and expecting a major decline in stock prices after Joseph Granville, a stock market seer, had predicted the day would be known as "blue Monday." The Dow Jones industrial average already was scraping a 16-month low and margin calls were going out to investors. Stock markets in London and Tokyo had been hit by panicked investors.

However, Mr. Dworsky, who runs the $60 million Contrafund, would have nothing to do with the dark cloud hanging over Wall Street. Instead, as he noted in an interview, "For anyone with any interest in stocks, it's hard to stay away from an opportunity like this unless you think the system is going to fail -- which we don't think will happen."

Investment professionals like Mr. Dworsky say minipanics, such as gripped the stock market yesterday (Sept. 28), often make the best buying opportunities. "This is the time for people with cash and guts," agrees Frank Parrish, a vice-president with Fidelity Management-Research Company, which manages mutual and trust funds in Boston. Mr. Parrish says the odds are good on such days Fidelity is mainly a buyer of stocks.

However, some investment professionals were not certain that even if the market rallied, as if often does following traumatic days on Wall Street, that it would represent the beginning of a long move back up. For example, Victor J. Melone, senior vice-president and chief investment officer for trusts at Manufacturers Hanover Trust, believes the market will "waffle around here until it gets a better notion of the business environment over the next six to nine months." And, Robert Gintel, who manages a mutual fund named after him, the Gintel Fund, with assets of $20 million, says "the smart buyers will hold off and wait to assess the damage. . . . There will be plenty of buying opportunities."

Mr. Gintel and other professional portfolio managers point out that Wall Street has lots of worries. Among them:

* The federal deficit and its impact on the bond markets. With an expected $ 30 billion to $40 billion in Treasury financing due in the fourth quarter, the bond markets, as one commentator noted, "are feeling a little lonely." Moreover, as Newton D. Zinder of EF Hutton noted, investors weren't cheered by Speaker of the House Thomas P. O'Neil Jr.'s statement that President Reagan's new budget cuts would be in trouble in Congress. Added Mr. Gintel: "It appears the political coalition that has brought about the budget and tax cuts may be coming unglued. It looks like a political battle is shaping up that will test the viability and credibility of Congress."

* The Federal Reserve Board continues to run a tight ship. Interest rates have remained high and short-term rates rose again on Monday. These rising interest rates -- both in the US and Europe -- boosted the dollar. However, Henry Kaufman, the chief economist at Salomon Brothers, told his clients on Friday the Fed now may have some leeway to loosen its purse strings since money supply growth has been slower than targeted by the central bank.

* The economy has entered a sort of "Catch-22" stage. Interest rates can't come down until the economy begins to deteriorate, but once the economy starts to falter, profits will shrink.

* Stock prices now face steep competition from long-term bonds. Mr. Melone of Manufacturers Hanover, whose trust department runs some $17 billion, says it's tough at this point to justify putting fresh money into the stock market when the long-term bond markets have issues yielding over 15 percent. "With stocks yielding 5 percent," he explains, "you have to see at least a 10 percent price increase to match bonds, and we don't see any 10 percent increase through 1982."

In spite of these negatives, Mr. Parrish of Fidelity maintains that stocks are cheap. "At this point, you get all kinds of theories about why the Dow Jones should go to zero," he explains, adding, that "The market interprets almost any news as black." This kind of buying opportunity, he points out, could be quite timely over the long run.

Still other investment advisers maintain that "bottom fishing" is difficult and dangerous. Mr. Zinder of E.F. Hutton cautions: "For short-term traders, we would avoid the temptation to bargain-hunt and wait for some definitive sign of a trading turn." This could be a selling climax (down sharply and then up sharply with very heavy volume on both sides). In the meantime, the EF Hutton adviser describes the market as "emotional" and "throat clutching."