Despite the wide swings, stocks may now have seen their lows for the year, some strategists say.
However, if the market has set the year's lows, that still doesn't mean smooth sailing for investors. It also does not mean the market will break above its current range, which tops out at about 1250, until more of the uncertainty surrounding Europe and the economy are resolved.
"We do think we've seen the low for the year but can't be as confident it's the low for the next 12 months," Brown Brothers Harriman strategist Andrew Burkly said in a quick note. "The can looks to be kicked at least past year end and earnings should be good."
Harris Private Bank chief investment officer Jack Ablin said he too thinks the market hit bottom last Tuesday, when the S&P 500 plunged to 1074 on an intraday basis. Ablin pared back on his stock holdings in early August and has been looking for a reentry point.
The S&P 500 finished Monday at 1194, a 3.4 percent gain over Friday's close.
"We picked 1050 as our entry point. We never got to that point, but we also said if we got some favorable momentum or the dust settled in Europe, we could use it as an entry point...I don't know if today's action signifies a solving of Europe, but it's certainly a step in the right direction. So, I think earnings could also propel the market higher," said Ablin. Ablin said he meets with his investment committee Tuesday morning to consider whether to change his position on stocks.
"There was no economic data to suggest we were going into a recession."
Better news from Europe has been helping drive the market higher, and the weekend's commitment from the leaders of France and Germany to recapitalize banks if needed helped drive the euro, and stocks and commodities higher. Stocks soared despite the lack of details on what a European plan might look like. German Chancellor Angela Merkel and French President Nicolas Sarkozy said they would agree on a plan for the banks and accelerating economic coordination in time for the G-20 meeting in Cannes in early November.
"I'm encouraged that we got a lot of decent news. I also felt like the employment report was a lot more important than a lot of people gave it credit for," Ablin said. "What it says essentially is we're likely to avoid a recession and the market has priced in a 50 percent chance of recession. One of the things I mentioned to our financial advisers when I spoke to them Tuesday was a lot of the negativity and all these indicators pointing to a recession...A lot of it was market related or sentiment related. There was no economic data to suggest we were going into a recession."
September's employment report, released Friday, showed an increase of 103,000 jobs, nearly double what many economists had expected.
The third quarter earnings season kicks off with Alcoa's after-the-bell report Tuesday, and some analysts have been apprehensive about company comments that may show that future earnings estimates are too high.
"I think they'll be better than what investors believe. Investors have written off analysts expectations and have written in a 20 percent decline in earnings for the next four quarters," Ablin said.
Carter Worth, Oppenheimer Asset Management chief market technician, said the the S&P 500's steep slide last Tuesday to 1074 and its quick snap back was an important test of the summer's lows of 1101, and the market passed the test.
He said, in a note, that the market action reaffirms his view that the market has been stabilizing since the Aug. 9 intraday low of 1101 and that the right play is to be long, not short. Worth said stocks find support every time the S&P trades below 1130.
"As all will know, support is not a plywood board or a concrete floor, but rather - it is a mattress top. And once down to support, the process of sinking into support is a normal part of finding support," he wrote.