Schwab Market Perspective: Stocks Climb Wall of Worry

(Liz Ann Sonders and David Kastner--Schwab.com) August 15, 2008

Stocks climb the wall of worry. A breakdown in the price of oil and other commodities, combined with a rally in the dollar, is lifting investor sentiment. Although there could be some more upside for the market, the history of bear markets shows that new lows could be in the offing.

Financial crisis still simmering, but edging toward a boil. Many of the government's efforts to shore up the credit markets have been somewhat successful. Yet, continued turmoil in the mortgage market is spilling into the broader economy. Until the housing market stabilizes, this is likely to continue.

The elusive housing market stabilization. As inventories remain stubbornly high, home prices continue to fall. While further declines are likely, the pace of house depreciation has slowed, offering some hope of stabilization next year.

Fall in commodities eases inflation concerns. Key measures of inflation continue to climb, but slower economic growth prospects around the globe have brought commodity prices lower. Inflation gauges, which are lagging in nature, should recede in the coming months.

Consumer and corporate woes. Retail sales have been bolstered by the federal stimulus checks, but the boost is quickly fading. As the unemployment rate rises, dour consumer sentiment threatens to reinforce a negative feedback cycle of slower consumer spending and weaker corporate confidence.

Global inflection point playing out. It is now clear that the U.S. is not alone in the economic slowdown. Although this is negative in many ways, it has brought commodities down and the U.S. dollar up—sparking a shift in U.S. and regional performance

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