Found this in a comment section on another forum, its not mine, but very interesting to repost here, So right now were sitting at around a 19.93PE probably over 20 at todays close, the list shows the highest PE's during the last 75+ years and the correction that followed them, seems the most shallowest correction was 11% back in 1959, I would probably rule out this chart if the market had 5 or 6 10%+ corrections along the way of this 6 year bull run, but we haven't had any so the bigger the ride up usually brings a nice pretty little correction on the way down....right now the s$p sits just up above 2100, so even if did rally to 2400 this year or even 2685 the following year and over 3000 by 2017 without the slightest pull back and we were to go into a recession with a significant pull back you would probably be able to buy the s$p cheaper in 2 or 3 years than you can today!
The average correction was 38.71%, I ruled out the 30% where it shows FEB 2015 highlighted in BLUE because we haven't had a correction yet ...
so using the average 38% correction on s$p 3000 brings you down to 1860....say if there is a 30% this year at s$p 2200 that would drop it all the way down to 1540, so I feel there is more downside risk in this market than upside, however with the fed propping up everything who knows if these historical facts hold true, maybe the market goes another 3 or 4 decades without a correction of any kind, maybe a meaningful correction in the future will be anything between 1-3%.
Here is a list of the highest ttm p/e's during non-recessionary periods, and the correction that closely followed them.
Apr 1999: 34 (-49%)
June 1946: 22.12(-23%)
Aug 1987: 21.42 (-33.5%)
Sep 1929: 20.19 (-89%)
Oct 2007: 20.68 (-57%)
Feb 2015: 19.91 (-30%?)
Dec 1968: 18.49 (-34.7%)
Dec 1972: 18.30 (-48%)
Jan 1966: 17.81 (-22%)
Jul 1959: 17.52 (-11%)
Jun 1990: 16.95 (-19.9%)
The average correction was 38.71%, I ruled out the 30% where it shows FEB 2015 highlighted in BLUE because we haven't had a correction yet ...
so using the average 38% correction on s$p 3000 brings you down to 1860....say if there is a 30% this year at s$p 2200 that would drop it all the way down to 1540, so I feel there is more downside risk in this market than upside, however with the fed propping up everything who knows if these historical facts hold true, maybe the market goes another 3 or 4 decades without a correction of any kind, maybe a meaningful correction in the future will be anything between 1-3%.
Here is a list of the highest ttm p/e's during non-recessionary periods, and the correction that closely followed them.
Apr 1999: 34 (-49%)
June 1946: 22.12(-23%)
Aug 1987: 21.42 (-33.5%)
Sep 1929: 20.19 (-89%)
Oct 2007: 20.68 (-57%)
Feb 2015: 19.91 (-30%?)
Dec 1968: 18.49 (-34.7%)
Dec 1972: 18.30 (-48%)
Jan 1966: 17.81 (-22%)
Jul 1959: 17.52 (-11%)
Jun 1990: 16.95 (-19.9%)
