After Tuesday’s heavy falls on the ASX which wiped 2% off of the S&P/ASX 300 (Index: ^AXKO) (ASX: XKO), Australian investors should be set for a calmer day on Wednesday with Wall Street ending down less than 0.5% overnight.

Interestingly, financial stocks on Wall Street led the declines, with the sector ending down around 1%.

While the overall market may be steadier today there are likely to be pockets of volatility.

Energy stocks suffered yesterday with Liquefied Natural Gas Ltd (ASX: LNG), Beach Energy Ltd (ASX: BPT) and Santos Ltd (ASX: STO) falling 11%, 8% and 7% respectively as investors headed for the exit.

With oil dropping a further 1.3% overnight in trade, it’s likely that oil and gas stocks will continue to be under pressure today.

The bigger picture

For investors who step back and take an overall look at the market there are reasons to remain concerned despite the potential for a calmer day on the ASX today.

According to data supplied by CommSec, the S&P/ASX 300 is trading on a financial year 2017 price-to-earnings (PE) multiple of nearly 20 times with expectations of earnings per share (EPS) growth of 10.4%.

A double-digit rate of EPS growth is certainly a high forecast, meanwhile, the forecast PE multiple is well above its long term average. These metrics could set the scene for a correction of some degree to pull the market back to less optimistic levels.

In my opinion, the current state of the market and its mood should have investors in a defensive mode.

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Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.