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Bulls on parade: Stocks bounce back ... for good?

Is the worst finally over for stocks after a dismal August and rocky start to September?

The Dow Jones Industrial Average closed up 390 points, or 2.4%, Tuesday after a big drop Friday following the jobs report.

Maybe investors are relieved that it's a holiday-shortened week of trading. Or everyone's elated because the Pumpkin Spice Late is finally back at Starbucks (SBUX).(#sarcasm)

Whatever the reason, it was clear that the mood on Wall Street was cheery -- for a day at least.

The S&P 500 was up 2.5% and Nasdaq soared 2.7% as tech stocks led the rally. Nasdaq also turned positive for the year.

And it was a rally with many winners. Only 22 stocks in the S&P 500 were trading lower Tuesday afternoon.

Stabilization after correction

Investing pros are hopeful that the market may have bottomed during the nightmarish plunge on early Monday morning of August 24.

Now that the major indexes have all fallen at least 10% from their recent highs, a so-called correction, there is a sense that stocks should stabilize,

"The markets have found some sort of footing. There is money out there still looking for a home," said Tom Stringfellow, president and chief investment officer of Frost Investment Advisors.

But make no mistake. There will be more volatility. It is not smooth sailing ahead for stocks.

Is the Federal Reserve finally going to raise interest rates or will it wait for some point later this year ... or even punt on it until 2016? The Fed meets next week.

Will Fed rip off the proverbial Band-Aid

If it decides to hold off on a rate hike, then jittery investors will have another few months to get themselves worked up about the first rate hike since 2006.

Some would argue that it would be better for the Fed to just rip off the proverbial Band-Aid.

"Until we get the first rate hike out of the way, there will be more volatility. We need more clarity," said Bo Christensen, chief analyst with Danske Capital in Copenhagen.

Lew Piantedosi, a portfolio manager with Eaton Vance, agrees.

He thinks the Fed wants to finally hike rates so it can move on. He also argues that the Fed should have raised rates several months ago.

China fears haven't disappeared

And what's next for China? There may be a new sense of calm for its stock market but there are still questions about its economy. And that is making many investors nervous.

"Most of the worries prior to August were just the Fed and rate hikes. Now, it's much more serious. There are fears about China and global growth," said Mark Spellman, manager of the Alpine Equity Income Fund.

Because of these concerns, Spellman said he's focusing more on companies that have little exposure overseas. Some of his top picks are media giant CBS (CBS), energy company Kinder Morgan (KMI) and credit card firm Discover (DFS).

Bargains everywhere

But not everyone's afraid. Some money managers are even salivating about the sudden bargains.

Christensen said he started "dipping his toes" back into stocks two weeks ago after selling stocks in July in order to cash in some profits.

"This is a market of opportunities," he said.

Piantedosi is almost ready to start shopping for more stocks as well.

"We are holding a little more cash than normal so we can pick our spots. But it may soon be time to start nibbling so we can take advantage of the volatility," he said.

Again, this is not to suggest that stocks are set to go on a straight shot higher anytime soon. There probably will be several more big down days ahead.

The key is to ride them out and resist the urge to panic. Fortunately, it seems like some investors are heeding that advice.

"We haven't had too many frantic client calls about stocks. That's much different than previous corrections. People are testing the waters," Stringfellow said. "Diehard investors are staying in the markets."

CNNMoney (New York)