Two weeks ago, risk wasn't in the dictionaries of a lot of investors. Suddenly, it's a four-letter word.

Investment managers say Wall Street's swoon last week -- the Dow Jones Industrials tumbled more than 4 percent while the Standard and Poor's 500 fell 5 percent -- reflects a greater investor appreciation of the risks they face at a time when: investments in so-called subprime home mortgages have soured; investors have lost some of their appetite for the low-price debt fueling the rash of mergers and acquisitions that have lifted stocks; and oil remains over $70 a barrel.

"We did not believe the institutional investor was pricing appropriate risk into the market," says Malcolm Polley, chief investment officer of Stewart Capital Advisors in Indiana, Pa. He says the broad market retreat is healthy.

The greater appreciation of risk was evident early Thursday morning to John Milne of JK Milne Asset Management, a Station Square firm that specializes in bonds and other fixed income investments. Mr. Milne pays close attention to the difference -- or spread -- between interest rates creditworthy borrowers have to pay and those imposed on more risky borrowers. For quite some time, spreads haven't been that wide, an indication bond investors didn't care about lending money at low rates to the private equity firms who have been on a buying binge.

Whether you lent to the U.S. government or a private equity firm making an oversized acquisition, "virtually every decision you made, whether it was risky or not, resulted in the same outcome," Mr. Milne said.

But interest rate spreads began widening significantly as Mr. Milne looked at his computer screen Thursday morning, a sign that lenders were going to be more careful in doling out credit for mergers and acquisitions.

"There's going to be some rationing of credit here," he concludes. "This thing is going to last for a while."

That's bad news for Wall Street, where much of the market's advance this year can be attributed to the takeover speculation fueled by easy money.

"I think that was the primary factor driving the market last quarter, the deals," says John Frankola, president of Vista Investment Management of Pittsburgh.

"I think there's still a lot of money out there to spend on these deals. I just think people are going to be smarter about it going forward."

Mr. Frankola says the S&P 500 hasn't had a 10 percent correction since March 2003, when it was 48 percent below the high it reached three years earlier. The index's last 5 percent correction was in May 2006.

He and others are surprised the market has held up so well given everything it's up against.

"I wouldn't have expected us to be hitting records for stocks with the price of a barrel of oil over $70," he says.

Among the sectors hardest hit last week were financial stocks, including banks and brokers. They get hit when borrowers can't repay loans or they can't collect fees from packaging subprime loans or taking care of their private equity clients.

Brokers "look totally toxic," says Colin Symons of Symons Capital Management in Castle Shannon. While some may believe the sharp decline might make the stocks of home builders more attractive, "I wouldn't play in that space yet, " advises Mr. Symons, who says he likes the nondurable consumer goods sector.

Last week's blowout left the Dow industrials off 1 percent for the month, but 6 percent ahead for the year. The S&P 500 is down 3 percent so far this month, but up the same amount for the year.

Where things go from here is anybody's guess, but Geoffrey Gerber of Twin Capital Management in McMurray expects a wild ride.

"No one minds volatility on the upside as much as they do on the downside," he says.

Mr. Frankola believes the market could still deliver a 10 percent return for the year. Mr. Polley is similarly optimistic. He believes the market may have some troubles getting through August and September as mutual fund managers prune the losers from their portfolios so they don't have to publish them in their annual reports.

"And then you'll probably finish the year with a nice upward move," he says.

Federated Investors' Steven J. Lehman isn't so sure. The manager of Federated's Market Opportunity Fund is known as "the Permabear" because of his perpetually gloomy outlook on Wall Street. He's not saying "I told you so" just yet.

"Every major decline starts out being called a healthy correction. I think this is just the beginning," Mr. Lehman says. "I don't think it's anywhere near close to being too late to sell.

What's in Mr. Lehman's wallet?

"I like cash, the Japanese yen, Swiss francs, agricultural commodities, gold and energy," he says.