The ups and downs of the market continue to be driven by fear. The Vix Index is a good proxy for the market's fear, as it measures the implied volatility of equity options, and that in turn is an indication of how much risk the market sees in the future range of outcomes. This chart suggests that the equity market is depressed because the level of fear is inordinately high. Once fear subsides, then prices should drift higher.
Fear is high because the market worries about the combination of the ongoing housing crisis and Obama's policies (e.g., higher taxes, bigger government, trade restrictions, union expansion) pushing the economy into a depression. In short, the market is behaving as if a perfect storm is approaching, with little hope that we can avoid a catastrophe.
In order to keep the market at these levels, or to push it further down, the housing crisis needs to continue and/or Obama has to deliver the market- and economy-unfriendly policies that investors fear. If there is any sign of a bottom in housing or if Obama pays any attention at all to what the market is telling him (remember how Rubin convinced Clinton to respect the bond market), fear will subside and the market will rise.
I've been worried about Obama's policies all along, but I think the chances of him implementing a series of economy-killing policies at this point in time in order to comply with liberal orthodoxy are not very high. Obama's future chief of staff, Rahm Emanuel, was one of the key players in the early Clinton years, and he knows what can happen if you push an aggressive policy agenda. The stakes this time are even higher, and so the Obama administration would be well-advised to tread lightly and pay all due respects to the market.
Still, we need to wait awhile to see what happens. In the meantime, how long can investors ignore the huge prospective returns now promised by stocks and corporate bonds? If things don't get worse, there are huge gains there for the taking. You are being paid a lot to take risk these days.