Wall Street Takes a Breath: A Return to Normalcy?

On the seventh day, the market rested. After five days of tumult that added up to the worst week in stock-market history, and a sixth day that saw the biggest point gain ever, the Dow Jones industrial average on Tuesday finished down 76.6 points, or 0.8%, an extremely mild loss considering the rollercoaster ride of recent days. The S&P 500, a broader measure of the stock market, finished down 0.5%, and the NASDAQ lost 3.5%.

Sweeping conclusions drawn from the daily gyrations of the stock market almost always operate on a flawed premise — that thousands of companies are moved by the same forces, and those forces create a cohesive narrative. In recent days, that premise hasn't been quite as far-fetched. As credit markets seized and governments the world round rushed in to prop up financial institutions, investor panic — and, on Monday, euphoria — swept aside most other concerns about companies' fundamentals. "It was indiscriminate selling," says Art Hogan, chief market analyst at Jefferies & Co. of last week's market activity. "It didn't matter what your company did. It was everything for sale."

What happened on Tuesday shows that might be changing. On trading floors, for the first time in more than a week, buyers and sellers focused on earnings and product launches instead of what was being said at press conferences in Washington and the interest rates banks charge to lend each other money. Even though those rates, which are closely followed as an indication of whether the credit crunch is getting better or worse, only eased slightly on Tuesday, it was enough to free up investors' minds to focus on the fact that, in the long run, the thing that determines a stock's price is the ability of a company to make money.

Exhibit A in the possible return to normalcy was the 3.5% loss in the tech-heavy NASDAQ, compared to the much smaller drop in the Dow and S&P. The indexes had been moving pretty much in tandem, but broke their lockstep on Tuesday on concerns about slower growth at Google, Intel's after-the-bell third-quarter earnings report, and how much companies will be investing in technology next year. Though a sharp drop, it was a hopeful sign that investors may have returned to caring about stocks' fundamentals and have left the sphere of fear that had been dominating the market's swings.

A sign — but not a certainty. "Whether or not that's really true, we're going to find out over the next couple of weeks," says Hogan. One day doesn't make for much of a convincing stock-market narrative, after all.