The Federal Reserve strode in with a massive 0.75 per cent cut in interest rates, steadying the markets by Tuesday, albeit at well under half where they were as recently as last July. But the gyrations in individual stocks continued.
One of the worst hit was HBOS: on the face of it, one of the safest high-street banks given its commanding position in the mortgage market and lack of exposure to the riskier areas of investment banking. But fears about its financial position sent its shares plummeting last week, down almost 60 per cent from last year's peak. While regulators attribute the fall to unscrupulous traders peddling rumours about liquidity problems - problems vehemently denied by the bank - and are trying to track down the perpetrators, it is a sign of nervousness that even these reassurances failed to spark much of a recovery in HBOS shares.
Geoff Tresman, chairman of Punter Southall Financial Management, says many clients fear that the markets are worse now than in 2000, even though the falls this time are nowhere near as severe. But how much worse can it get? A US recession is a near certainty and there is increasing talk of a 1930s-style depression. The theory of 'decoupling', which held that China and the other emerging economies would keep global growth going whatever happened in America, is less credible by the day; our own housing market is increasingly shaky; and firms such as Next are warning that retail sales could fall 4 to 7 per cent this year.
Small wonder, then, that retail investors are wondering whether or not to bail out now. Philippa Gee, at Torquil Clark, says: 'I understand why people should be thinking like that; but selling at such a low point, if you do not need the money in the next few days, is not sensible.'
Research by Fidelity highlights the pitfalls of panic selling: even the most experienced of fund managers cannot hope to get entry and exit timing absolutely correct, and missing the good days by not being invested in the market can be worse for your wealth than enduring the bad. Anyone staying invested for the last 15 years would have achieved a 264 per cent return, but if they had missed the 10 best days, that would have fallen to just 140 per cent; miss the 40 best days and the return would have been just 0.52 per cent.
Guessing when these good days will fall is impossible: Fidelity's research shows that three of the best 40 days in the market have been this year, when the general trend has been sharply down.
Others point out that over the long-term equities are generally a good bet. Barclays' Equity-Gilt study of investment returns shows that equities have beaten cash and gilts in three-quarters of the consecutive five-year periods since 1899. The study also shows that, when shares lag, they can do so for a long period: those who invested in 1972 would not have been back in the black, after adjusting for inflation, until the mid-1980s. Of course, markets may quickly settle - and Max King, investment strategist at Investec, is convinced that last Monday represented the bottom of the market - but it is sensible to wait until the direction is clearer.
Regular savings are a sure-fire way of ensuring your money goes in at the bottom, albeit that some will also end up being fed in at the top. Those who are anxious to use their Isa allowance should take advantage of the ability to keep the £7,000 allowance in cash initially while deciding where to put it, and whether to drip it in gradually or invest as a lump sum. So long as there is a clear intention to invest, the Inland Revenue should not be too concerned.
Those who do want to invest immediately should chose lower-risk products. Many advisers believe that corporate bonds look attractive: Gee recommends the strategic bond funds from Artemis or F&C, which can switch to different types of bonds depending on the market, or Invesco's and Gartmore's corporate bond funds.
Alternative assets like gold and commodities have been soaring as investors look for havens. Gold has surged through $1,000 an ounce - although ETF Securities points out that it is still only at around half its 1980 peak, after adjusting for inflation.
In a new twist, Sarasin has launched an agriculture fund to invest in companies that will benefit from the rising demand for agricultural commodities. And ETF offers a range of securities tracking the price of commodities - including agricultural ones - which are traded like shares and can be included in an Isa.
Brian Dennehy, of Dennehy Weller, accepts the long-term argument in favour of commodities but fears there is too much froth in prices at the moment. He believes that cash, rather than commodities or equities, is king for now.
