According to JPMorgan, the fall in both developed and emerging equity markets of close to 20% since last October already closely matches the average fall of 21% in the previous 10 recessions. To some extent the fall has been so great that equities are already looking cheap. Historically, the bank points out, P/E ratios have tended to peak at a 10% premium to recent trading ranges at the onset of slowing growth. Before the current market fall, however, equity P/E ratios actually peaked at a 20% discount to recent trading ranges.
Although some might argue that the cheap valuations are based on overly optimistic forecasts of earnings growth, even a 10% fall in earnings growth would still leave European corporate 2008 P/E ratios of just 14, only slightly above their long-term ex-bubble average of 13.4.
That’s not to say that the market has no further to fall, as no positive catalysts are yet in sight.
"Market bottoms have little to do with earnings," says Ian Scott, global equity strategist at Lehman Brothers. "The trough for earnings normally comes way after the onset of recession so it’s not a good idea to look to earnings to call the bottom of the market.