Post #3525 by BenSolar on the Mechanical Investing board

Investment Strategies / Mechanical Investing

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IF valuations based on smoothed real earnings revert to what has been the normal valuation levels in the last 20-30-40 years, you'd expect the S&P to be at roughly 3650-4320 these days, a drop of about 26-38% from here. Emphasis on the "IF"--this is an observation of what the arithmetic says, not a market call.

Note also that this would only get things back down to "average". As you might expect, the market spends about half its time below the average valuation level, so bear market bottoms would be expected to be meaningfully lower than that.

Yep, if we have a recession-fueled serious bear market, the S&P 500 could find it's way down to a drop of 50-60%. We'd expect it to take a year or two for the bear to play out.

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