After plunging 11 percent from Aug. 17 to Aug. 25, the S&P 500 index has rebounded 6 percent.
So does that mean the rout is over?
No, says Doug Ramsey, chief investment officer at Leuthold Group. The problem is a shortage of cash that investors can use to buy equities after the Federal Reserve ended its quantitative easing program in late 2014, he told
The Wall Street Journal. The Fed was purchasing $85 billion of bonds a month.
In addition, Ramsey calculates the S&P 500's price-earnings ratio, using five years of earnings, at 20, up from a long-term median of 17.
The weakening of transportation, utility and industrial shares also has served as a warning sign for the market, Ramsey says. This looks like “a garden-variety, cyclical bear market,” meaning a decline of 20 to 25 percent, he said.
A 25 percent drop from the S&P 500's May 20 record high of 2,134.72 would put the index at 1,601.
Other respected financial voices are warning of more volatility.
“I think the market is unstable and vulnerable to news flows. It could be volatile,” said the optimist, David Kotok, chairman of Cumberland Advisors, which oversees $2.5 billion in Sarasota, Fla.
Nobel laureate economist Robert Shiller wrote in
The New York Times that a return of his cyclically-adjusted P-E ratio, which take into account 10 years of earnings, to its historical norm, would put the S&P 500 at 1,300. The ratio now stands at 25.1.
Jason Trennert, chief investment strategist at Strategas Research Partners, doesn't think we're out of the woods yet either.
"The volatility is not over for two reasons,"
he told CNBC. "One, we don't know what the Fed's going to do. Two, I think the China devaluation was a game changer. Until those two things are resolved, I think it's going to be hard for the market to make a big bounce from here."
As for the Fed, until this week many economists expected it to begin raising interest rates next month. But now some officials at the central bank say that might not be such a hot idea, given the stock market's volatility.
As for China, its decision to devalue the yuan two weeks ago (the currency has dropped 2.6 percent against the dollar) shows incompetence on the part of China's government, Trennert said.
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