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Trading > Amateur Investors

Historical PE Ratios and Cyclical Bear Markets

Bob Kleyla | Mon, 05/11/2009 - 1:39pm | Amateur Investors, Cyclical Bear Market, PE Ratio, S&P Composite |  3 comments

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Since 1896 we have seen 3 Cyclical Bear Markets and currently are now experiencing a 4th one.   If you analyze the Inflation Adjusted Data not only for the S&P Composite but the PE Ratios as well one thing has stood out with each previous Cyclical Bear Market. 

Bear Market Bottoms did not occur until the PE Ratio dropped below a value of 7 with the prior 3 Cyclical Bear Markets.   The latest Inflation Adjusted PE Ratio for April was just above 15 so from a historical perspective the current Cyclical Bear Market is nowhere near a bottom based on previous Cycles.

PERatioMay09_1.GIF

Currently it appears this Cyclical Bear Market is acting like the ones that occurred from 1906-1921 and from the late 1960's through the early 1980's which were drawn out cycles that lasted from 14-15 years.    The current Cyclical Bear Market began in 2000 and not in 2007 based on the Inflation Adjusted data.   Thus if we see a similar pattern like that from 1906-1921 and from 1968-1982 then this current Cyclical Bear Market could extend through at least 2014 or 2015 if not longer.   Also notice in the chart above I have drawn in the longer term upward trend line connecting the 1932 Bear Market Low with the 1982 Bear Market Low and as you can see the S&P Composite could still drop another 50% or so from its current level and still maintain its longer term up trend.   

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Bob
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