If October is indeed the bottom, it's the richest bottom in decades.
"At all prior major market bottoms over the past four decades, the forward 12 month PE multiple drops to 9-11x," Nick Raich at The Earnings Scout told me. If October is indeed the bottom, "it would be the highest forward 12-month PE ratio at a market bottom in over 40 years." Other strategists have also noticed that the S & P 500, despite a 20% drop in 2022, is still trading at a rich valuation.
Analyst earnings estimates for 2023 have come down, but not by much. Instead of $237, estimates are now $229, and the multiple is now 16.7 times forward earnings. This goes to the heart of the problem: Somebody is wrong. Analysts and investors, for the most part, are still pricing in a very shallow recession. That would mean that earnings drop very little, and multiples can stay relatively high. If that happens, and we get a shallow recession, then prices and earnings are not crazy.
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