Post #3519 by tecmo on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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In the five US recessions since 1980, on average stock market valuations have gone from 16 to 11 times forward earnings, always ending no higher than 14x.

Can you confirm the data points you are using?

SP500    : 5250 (current)
SP500    : 6100 (peak)
2025 EPS : $260
2025 PE  :  20x (Current)
2025 PE  :  23x (Peak)

So statement of "16 to 11" is interesting, the market is at 20x not 16. Is this peak to bottom? (historically)? We might extrapolate a 30% compression in PE (16->11), if we use peak values we would get a target PE of 16x, which would imply 4160 as a target index value.

Interestingly, my "typical recession" estimate for SP500 was right around 4200... clearly this is not yet priced in.

tecmo
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