David Rosenberg: S&P 500 could drop as low as 2,500 before this bear market is finished

Indeed, based on the historical path of revisions in recession years, we may ultimately see 2023 earnings wind up at US$177 per share . If we assume an unchanged price-to-earnings multiple, this points to the S&P 500 falling to 3,000 before the bear market is complete. But there is the potential for additional downside from this level. A “normal” recessionary trough multiple is about 14x, which would put the S&P 500 at 2,500.

For example, the S&P 500 is currently trading at 16.8x next year’s earnings, but what if this estimate is 10 or 20 per cent too high? Well, then we are talking about a “true” multiple of 18.7x and 21x, respectively. No one would be talking about the market being fairly valued at these P/E ratios, especially given where interest rates are currently.With that in mind, we examined the evolution of earnings revisions during past recessionary periods.

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