The worst is not yet behind equity investors in 2018, according to a recent poll of 500 institutional investors. The opinion among 57% of these investment professionals polled by Strategas Investment Partners, and as reported by Bloomberg, is that the S&P 500 Index (SPX) will go even lower than the recent low of 2,533 reached on February 9. How much lower? "I would suspect that we're going to see another 10% decline certainly in the next year, maybe even a 15% decline" is the opinion of Joe Duran, CEO of United Capital, in remarks on CNBC.

Duran spoke to CNBC on February 20, on which date the S&P 500 closed at 2,716. A drop of 15% from that level would take the widely followed market barometer down to just over 2,300. It closed at 2,701 on February 21. 

The Investopedia Anxiety Index (IAI) continues to register extremely high levels of worry about the securities market among our millions of readers across the globe. Meanwhile, adding to anxiety, a market strategist warns that big selloffs tend to come in three waves, and that the third one is yet to come.

^SPX Chart

^SPX data by YCharts

'Third Wave' Coming

Big selloffs "tend to happen in three waves," according to Chris Watling, CEO of the financial advisory firm Longview Economics, per another CNBC report. "The idea that it's done in one sell-off is, I think, probably a triumph of hope over reality," he continued.

We've already gone through two waves typical of this pattern, Watling says. The first wave was the big 10.2% correction in the S&P 500 from the close on January 26 through the close on February 8 (or 11.8%, if you continue to the midday low on February 9). That was followed by a typical second wave, what Watling calls a "relief rally." What's next? "Then you tend to get third wave to either new lows or testing the lows from the first wave of the sell-off," he says, adding, "there's probably some more downside risk over the next few weeks."

Withdrawal Symptoms

Watling's biggest concern is that "This has been the most heavily, liquidity-fueled bull market ever." As the Federal Reserve and other central banks around the world start to raise interest rates, reversing their policy of quantitative easing since the 2008 financial crisis, he sees a "dangerous" situation developing for the markets due to this withdrawal of liquidity.

Legendary bond fund manager Bill Gross has likened this massive injection of liquidity to a narcotic for the markets. Former Federal Reserve Chairman Alan Greenspan has a similar view, seeing a massive bond market bubble that also will produce a stock price collapse when it pops. (For more, see also: Stocks' Big Threat Is a Bond Collapse: Greenspan.)

S&P 500 P/E Ratio Chart

Lofty Valuations

Historically high stock market valuations raise the prospect of a tremendous setback for stock prices, should they return to long-term norms. The CAPE ratio, a measure of stock valuations developed by Nobel Laureate economist Robert Shiller of Yale University, is at its highest level ever, except for the Dotcom Bubble years of the late 1990s. Just since 2011, the forward P/E ratio for the S&P 500 has shot up by about 70%, per analysis by Yardeni Research Inc. (For more, see also: Why The 1929 Stock Market Crash Could Happen In 2018.)

A recent decline in the forward P/E ratio for the S&P 500 is partly the result of the recent correction in stock prices, and partly the result of rapidly increasing corporate earnings forecasts by Wall Street analysts. However, these are indeed forecasts, and whether they eventually represent reality remains to be seen.

The Bullish View

The fourth quarter earnings season is shaping up to be one of the strongest ever, according to Goldman Sachs Group Inc., in their latest U.S. Weekly Kickstart report. Through February 16, 80% of the S&P 500 companies have released earnings, and 54% of those have beaten consensus EPS estimates, the best showing since 2010, per Goldman. Partly as a result, the consensus estimate for total 2018 S&P 500 EPS has risen by 7% to $158. Strategists at that firm see continued reasons for bullishness in strong economic fundamentals and the fact that recent stock market gains have been driven by rising earnings, rather than expanding valuation multiples. (For more, see also: Why Stocks Won't Crash Like 1987: Goldman Sachs.)

'Muted' Reactions

However, Goldman observes that the market's recent reactions to earnings reports have been "muted" by historical standards. Recent earnings announcements that beat analysts' estimates are being followed by smaller gains than history would lead one to expect, and price declines after announcements are also less severe than historical norms. Goldman does not offer a theory for why this is happening. Is it investor complacency (a bad thing) or a long-term focus among investors who are unfazed by short-term results (a good thing)? Take your pick.