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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David Rosenberg: S&P 500 could drop as low as 2,500 before this bear market is finishedDavid Rosenberg expects better stock buying opportunities to arise down the road when a recession is fully “in the price.” Find out more
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