Debt Worm Turns for a Day

Investors had gotten used to mortgage-related downgrades out of the credit ratings agencies, but Monday Standard & Poor's surprised the market with something focused on the positive.

S&P increased Morgan Stanley's(MS Quote) credit rating and adjusted its outlook to stable from positive. The ratings agency noted that the investment bank stands out as "especially well-positioned to withstand market volatility compared to industry peers."

S&P also noted that it "believes its exposure to the woes of the U.S. subprime mortgage market and to problematic leveraged corporate underwritings is manageable." And, S&P says the firm "should be able to maintain satisfactory earnings even if market conditions are considerably more challenging."

S&P's analysis could be the start of the next leg of this credit market correction, if all else remains status quo.

Market participants understand what a collateralized debt obligation is, what leveraged loans are and how private equity was able to stick loans with investment banks' balance sheets. With more than a weekend's worth of mulling, the analysis will continue to turn more from panic-stricken "whys" and "how comes," to questions of "who's worst off" and how will the markets resolve the credit markets' recent turmoil?

The key is all else remaining status quo: Tuesday brings the next read on the health of the consumer with the personal income and consumption data for June along with the Federal Reserve's preferred inflation measure, the core personal consumption expenditures index.

Analysts predict core inflation rose a modest 0.2% in June while incomes are expected to have gained 0.5%, but spending is expected to be weaker. Analysts expect it edged up only 0.1% in the month, after a 0.5% jump in May.