The reign of terror in the stock market has a way to go, several investment pros say.

Despite last week’s two-day bloodbath, when the Dow plunged nearly 520 points, there’s a strong likelihood that the root cause of the drop — swelling credit worries — could become a harsh reality. This would negatively impact corporate financing, hurting numerous sectors of the economy and slowing down economic growth.

“I don’t think we’re in for any imminent credit crunch, but we all know tighter credit is on the way,” money manager Tom Postin of Los Angeles-based P&W Partners told me yesterday. “The question is,” he said, “is it going to damage some overleveraged financial institutions and kill deal activity? The answer is probably yes.”

Over the weekend, some exuberant TV talking heads aggressively pushed immediate stock purchases in anticipation of a strong rebound, Wall Street veteran Fred Dickson says he thinks that’s dumb. “I’d sit on the sidelines; it’s too soon to bet on a rally,” the chief investment strategist of regional Northwestern brokerage D.A. Davidson & Co. of Great Falls, Mont., said. Pointing to mounting credit concerns, spurred in large part by the recent failure of Chrysler and Alliance Boots Plc to find buyers to fund $20 billion of loans to finance buyouts, he says he thinks the market is unlikely to gain any support until the Dow drops back to the 13,000 level or perhaps slightly below that. (It closed Friday at 13,265.47)

Mr. Dickson says he believes the financing window for mergers and acquisitions, the market’s major catalyst this year, has been temporarily shut. Not only that, he questions whether a number of announced deals will actually go through. Among them is wireless biggie Alltel’s efforts to go private in a $27 billion buyout and the $32 billion acquisition of TXU Corp. (Texas Utilities) by a group of investors led by Kohlberg Kravis Roberts and Texas Pacific Corp.

Mr. Dickson, one of the more accurate market forecasters in this column, looks for the deal flow for the rest of 2007 to slow to a trickle from a tidal wave. He also says growing investor awareness of this prospect is in large measure responsible for the avalanche of selling that has hit the market. Still, he’s by no means bearish; he just thinks it will take at least another 30 to 45 days to restore investor confidence and calm the credit markets.

By the fall, he says, the market will get cracking again, spearheaded, he predicts, by reasonably strong earnings growth in most sectors, solid income and employment growth, a decent economy, strong global growth, and plenty of liquidity (chiefly a reference to $2.56 trillion in money-market funds). Mr. Dickson says he doubts the Dow will get back to 14,000 this year, but he does see a rebound to around 13,800 by year end from Friday’s close.

The decline has shell-shocked many managers, causing them to raise cash, clamp down on any new buying, or simply move to the sidelines. There’s a clear unwillingness to take risks, even though some like the market fundamentals. One such worrywart is David Rosen, president of the Graham & Dodd Fund, who is sitting with 15% to 20% of his assets in cash. “I want to see the dust settled before we do any buying,” he says. “Right now, with high volatility scaring many investors, it’s wait and see for me.”

A more pessimistic view is taken by money manager Raymond Stahler of London-based Stahler Dearborn Ltd. He sees a possible rally at Dow 13,000 or perhaps Dow 12,700, maybe a sharp one, but he doesn’t think it will hold. “We’re not over the hump yet,” he says, arguing the decline is conveying a clear message — namely that even though everyone knows about the sub-prime and housing problems, there could be more disasters on the way, like the collapse of Bear Stearns’s two mortgage-based hedge funds. He notes, too, that with oil approaching $80 a barrel and supermarket shopping getting pricier by the day, a higher rate of inflation in America poses real risk.

One adventurous spirit is Arnold Silver, a veteran West Coast money manager and day trader. Late last Thursday, prior to the market’s close, a brutal session in which the Dow skidded 311.50 points, he fattened his holdings in four stocks — IBM, Chevron, McDonald’s, and AFLAC. Mr. Silver didn’t strike gold with his strategy, as the Dow tumbled another 208.10 points on Friday and all four stocks fell on the day. “I was premature, but I’ll be right,” he says. “These declines are like those great sale days on Rodeo Drive. How could you not go shopping?”

Mr. Silver, who manages about $110 million of wealthy clients’ assets, recalls he did similar shopping about six months ago, on February 27, the day the Dow tumbled 416 points to 12,216 in reaction to a 9% plunge in the “Wild West” Chinese market. It was a golden move for Mr. Silver, as the Dow subsequently turned around and shot up to in excess of 14,000. “I didn’t have to be a genius to figure it out,” he said, explaining his buying. “Panic selling is always followed by a huge rebound. It happened after the 1929 Depression, the assassination of President Kennedy, the resignation of President Nixon, the 1987 crash, the dot-com craze of the early 2000s, and it’ll happen again. Like death and taxes, it’s almost a sure thing.”

dandordan@aol.com