If you think the market is cheap after Wednesday's big swoon, think again.

While there's little doubt that valuations have moved lower recently -- full-year profit estimates for the S&P 500 have risen by almost 3 percentage points since the start of 2004, and the Dow and Nasdaq have now slipped into negative territory for the year -- a number of analysts say the market is still too expensive.

The S&P 500 now trades at less than 18 times its full-year 2004 forward earnings estimates, while the Nasdaq trades at 33 times forward estimates, according to Bloomberg. At first glance, these numbers might seem reasonable. They're certainly well below bubble-era valuations, and some pundits say they are justified by strong profit growth this year. S&P 500 earnings are slated to rise 15.6% in 2004.

Still, a number of analysts worry that these earnings estimates are too optimistic. Smith Barney analyst Tobias Levkovich said profit margins, which are currently very high, could be crimped as the labor market starts to improve and wages and benefit costs go up.

"We are not suggesting that earnings growth will not continue," he said. "However, we do believe that expectations for earnings might be a tad aggressive as we look into the future."

Others note that an inevitable hike in interest rates will hurt earnings, as borrowing costs rise and consumer demand for items such as homes and cars declines.

Meanwhile, some analysts worry about the effect on earnings from a possible revaluation of the Chinese yuan. Premier Wen Jiabao said Tuesday that the country plans to cool its fast-growing economy. Any revaluation of the yuan -- which is currently pegged to the dollar and considered undervalued -- could hurt profit margins at companies like Wal-Mart ( WMT) and Home Depot ( HD), which purchase a lot of goods from China.

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