Bulls Circle the Wagons

But what's unsettling is that the direction of each of these measures is up -- delinquencies, foreclosures and tighter standards for consumer credit.

Whether or not subprime drags down the rest of the economy is still up for debate.

Certainly, fear runs high when the market has dramatic declines like last Tuesday's, but sometimes the correction is an overreaction. Hindsight shows that 1987's 20% stock market drop on Oct. 19, 1987 was a situation in which the market "had overreacted to a modest negative shift in fundamentals," writes Bank of America's chief equities strategist Tom McManus.

In the 12 months following the October 1987 crash, the S&P 500 gained 28.1%, he notes. On average, the one-year return on the S&P 500 after a "significant one-day decline" is 12.7%, only slightly better than the 10% average total return for the index since January 1928, he writes. McManus says there were 16 significant one-day declines since 1928.

The other most recent one-day decline prior to last Tuesday's was a 6.7% drop on Oct. 27, 1997, after which the S&P 500 added 24.2% in the following 12 months. It followed an Asian currency crisis at a time at which global markets were similarly correlated, as they are today. Depending on your perspective, a comparison to 1997 is a point for the bulls or for the bears.