Earlier this summer, investors were terrified about runaway commodity prices and inflation. Now oil is below $70 a barrel.
So jittery investors turned their attention to the frozen credit markets. Now those too are showing signs of improvement following aggressive government action.
The latest worry: corporate profit forecasts.
A wide range of companies have issued disappointing forecasts in recent days, including consumer-tech giants Amazon.com (AMZN, Fortune 500) and Apple (AAPL, Fortune 500); industrials like DuPont (DD, Fortune 500); and transportation firm Ryder Systems (R, Fortune 500).
Talkback: Are you pulling money out of the stock market?In addition, other well-known companies across a variety of industries are bracing for tough times by laying off workers. In just this week, Yahoo! (YHOO, Fortune 500), Merck (MRK, Fortune 500), Chrysler and Goldman Sachs (GS, Fortune 500) have all announced big job cuts.
What appears to be spooking investors is the notion that the economic slowdown is truly global and that nobody knows just how much worse it will get or how long it will last.
"Underlying fundamentals are pretty poor and people don't have a real good handle on how bad things really are," said Vincent Boberski, portfolio strategist with FTN Financial in Memphis.
"To call a bottom is extremely premature. It's early on in this whole process both in terms of an economic and financial market recovery. Things look a little more normal now but only relative to a few weeks ago," he added.
Quincy Krosby, chief investment strategist with The Hartford, said it is becoming increasingly clear that earnings estimates for the fourth quarter, as well as for the first two quarters of 2009, will probably have to be lowered from current levels.
Despite this, the Dow wound up finishing Thursday with a triple-digit point gain, increasing more than 172 points, or 2%, after falling as much as 275 points earlier in the day.
This does not make Krosby happy. She thinks that one of the biggest problems facing the market right now is that it is simply too volatile in both directions.
"What the market needs is stability. A steady market that is for the most part positive would bring in buyers," she said. "When you sit there and watch markets that go up 500 points and down 500 points, you can sit on the sidelines and wait for some stability."
Boberski adds that there is an utter lack of conviction about the near-term outlook.
"The prospect of a deep recession has been the preferred explanation for stocks trading off so sharply," he said. "But fundamentals haven't really changed that much in the past week."
In other words, that tried and true axiom about investors hating uncertainty is what's really in play right now.
Yes, everybody knows that the economy is in bad shape. But how much worse will it get and are stocks finally cheap enough for any of the various doomsday scenarios that economists and strategists are discussing?
"The question that most investors are coming to grips with is, 'Have valuations captured all the negative news that we're capable of factoring in?' " Krosby wondered.
Unfortunately, that's impossible to say. So get used to more big swings (up and down) until it finally becomes more evident just how much longer this slowdown will last.
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