It's Not the End of the World

"If you believe that the price of oil is falling because hedge funds and speculators are getting short, once the price finds its bottom, the jump up could be dramatic in a short-squeeze pop," says Hogan. "It could go from $54 to $58 in short order."

Chief energy economist at Deutsche Bank Adam Sieminski says that natural gas has bottomed on the warm weather story, and that oil prices will rebound to $60 per barrel in 2007 due to global growth demand fundamentals and OPEC production cuts.

A rotation out of energy and other commodity stocks makes sense amid tighter central banks around the world, not to mention warnings from majors such as Chevron (CVX Quote), which lost 1.3%.

But change doesn't mean disaster. The mid-cycle soft landing remains the most likely scenario, and investors embraced that idea again Wednesday.

Chicago Federal Reserve President Michael Moskow agrees. The voting FOMC member reiterated the message that inflation is "the predominant concern" for the Fed. But regarding growth, he emphasized the economy's strength. "I do not expect a large spillover of the weakness [in housing] to other sectors of the economy," Moskow said in a speech in Coraville, Iowa, on Wednesday. "Consumer spending has held up quite well."

Investors didn't react poorly to the hawkish talk, which was echoed by Dallas Fed President Richard Fisher, and Wednesday provided a slew of good economic news.