Despite hitting a new market-correction closing low only yesterday, evidence is building that a bottom is forming. All told, the Standard & Poor's 500 had tumbled 12.4 percent in less than five weeks.

On a closing basis, stocks were in a tight range over the three previous days this week. Today, the Dow Jones industrials jumped 285 points, and the Standard & Poor's 500 was up 3.3 percent. This rebound provides additional hope, but no definitive conclusion yet, that the market is forming a new base.

This doesn't mean the low has been reached. But we think the worst is over. First, it's necessary to recognize that periodic volatility is a given in the financial markets. Second, a market pullback was long overdue, and it finally arrived this month. Such short-term events are necessary because they eliminate excessive investor enthusiasm and pave the way for more gains ahead. It's still too soon to say that the market advance from the historic lows of March 2009 is over. And market retreats in a bull market typically are fast but short, as this one has been.

There are no guarantees. But based on a variety of historically reliable indicators, the May mayhem created an extreme enough level of investor pessimism to signal that the worst "should" be over. Not that there is no longer a risk of further declines, but that we should start to see some improvement.Read more...

Renewed fears about the government-debt contagion in Europe sent stocks around the world sharply lower Tuesday. But the market's reaction to the sovereign-debt problem so far pales compared with the grim times of 2008.

A strong financial-markets foundation is the best defense against bad news. And the financial markets rebounded yesterday and today. One reason is that Europe's politicians finally moved ahead more aggressively to deal with the growing debt problem.

But also important is the continuing impressive rebound in earnings growth. About 80 percent of the companies in the S&P 500 that have reported results for the latest quarter have exceeded estimates. Even in Europe, where economic growth is sluggish, corporate earnings are rebounding well.

Standard & Poor's sparked Tuesday’s sell-off by cutting Greece's debt rating to below investment grade, or "junk." The government debt of Portugal was also lowered by two levels to A-, providing clear evidence that the debt woes are spreading.

The result was another of those periodic flights to safety that still happens pretty often. The dynamic there is strength of the U.S. dollar, investor enthusiasm for U.S. Treasury securities and declines for commodities. This time, though, gold is doing very well in a reversal of its previous tendency to weaken when the dollar strengthens.Read more...