Talk Is Cheap and Has a Price

Back to the words. Regarding Tuesday's selloff and Thursday's early swoon, many traders and commentators said some version of: "There is nothing fundamentally wrong."

They may be right.

The foundations of the liquidity boom that fueled this bulled-up market are still in place, says Ethan Harris, chief economist at Lehman Brothers. The world isn't embarking on a synchronized tightening of monetary policy. Japan doubled its interest rate two weeks ago but to a still minuscule 0.5% and no financial institution blew up as a result. Plus, $60 per barrel crude oil still has the petroleum-producing nations awash in so-called petrodollars they will put to work.

Harris believes the market and the U.S. economy are more likely to come out of the other side of this correction with bullish sentiment back on track. But he does acknowledge the risk that excess caution, or a move to cash, could cause liquidity to quickly vanish from the system.

"When people call for a correction, they're just waiting to get back in," says Art Hogan, chief market analyst at Jefferies & Co. "There is still pent-up demand for equities at a better price. As opposed to looking at this as, 'How long does this last?' the question is more, 'Maybe now we have that better entry level, where we can get cash on the sidelines back in the game?' "