As you have seen from news last week, the stock market has taken a big hit. This result continues the trend that we have seen for the last several weeks.

In my opinion, the results come from a convergence of a number of factors:

* The continued bad news in the subprime loan world. A higher than normal number of borrowers are defaulting and/or foreclosing. Real estate prices have fallen all over the country and especially in California, which undermines some investor's confidence.

* The lenders and other financial institutions that packaged many of the subprime loans, have taken massive hits to their books as they write off these bad loans. Of course, this is affecting their stock price.

* Bad inflation news came in with oil and other costs rising rapidly. Of course, this translates to higher costs in many products as companies deal the higher fuel costs. Medical and related costs continue to rise.

* When the economy sounds weak, consumers start to pull back on their spending. The thinking is that "we better not spend. We many need our cash to see us through some tough months ahead." This thought process feeds into the milieu.

* There is more talk now about the country slipping into a recession. We may already be in one since the data is always slow to report.

* The stock market does not like uncertainty. Actually the stock market does not have a mind. Better, said, investors don't like uncertainty. It is almost always about economic confidence by investors.

* The political scene provides massive publicity as the candidates try to take advantage of the plethora of bad news.

All this being said, I want to give you some thoughts:

* We have been through this many times in the past decades.

* We have had five consecutive years of dramatic growth in nearly every investment sector. Corrections are normal and healthy in the long run.

* Balanced portfolios always do better than 100 percent stock portfolios. Most investors are or should be in balanced portfolios.

* If we are in a recession, they usually don't last very long. Some are less than 6 months long.

* Interest rates have fallen and will continue to fall. The forecasters predict that the Federal Reserve will lower interest soon. This may help.

* Although, unemployment has risen, historically it is quite low. Most people have good-paying jobs.

* The stock market has always rebounded from market correction lows. Will it this time? Yes. When? Not sure, but it will rebound.

* Long-term investors (those with more than a five-year time frame) nearly always are rewarded by continuing to invest or at least, by not pulling out when the market corrects.

* Literally, billions of dollars are flowing into the market every day by investors of 401K plans, IRAs, profit-sharing plans and other retirement accounts. This will help.

* Houses are now more affordable to qualified first-time home buyers than in the last 5 years. Lower interest rates are helping them too.

* There will probably be more bad news before it gets better. No one knows for sure how much pain corporations will report in the near future.

* You can bet on a lot of political rhetoric in the next few weeks about a government stimulation package. They have done this before and it does help get more money in circulation. However, this is temporary and only a bandaid.

* U. S. businesses are quite resilient. Many are profiting from international operations since the entire world has become smaller. This will bode well for many stocks.

In conclusion, most money managers are still bullish on the stock market. They will continue a heavy weighting in international stocks. Also, you should see a continue pull back in bank and other financial services companies stocks until they work through the subprime problems. Don't count Merrill Lynch, Citibank, AIG, Bank of America and others out yet. There will also be more emphasis on consumer cyclical stocks that are somewhat recession proof.

Don't panic. This is almost always the wrong thing to do.

Notable quote: "The economy depends about as much on economists as the weather does on weather forecasters."

Tom Mills is a registered investment adviser and certified financial planner. If you have questions or topics, call or write him at 1030 Seminary St. Suite D, Napa CA 94559, 254-0155, fax 254-0158 or e-mail suntrm@aol.com