S&P 500 Valuations Below Recessions Since ‘57

The rout that erased $2.9 trillion from U.S. equities has pushed valuations in the Standard & Poor’s 500 Index 25 percent below the average level from the last nine recessions, even as profit estimates fall.
Companies in the benchmark gauge for American equities trade at 10.2 times 2012 forecast earnings, compared with the average in economic contractions since 1957 of 13.7, according to data compiled by Bloomberg. At the same time, analysts have cut projections for profits next year by 2.6 percent to $110.78 a share, the biggest eight-week drop since 2009, the data show.

Bears say analysts have just started paring earnings estimates and that shares will prove expensive when gross domestic product shrinks. Bulls say stock prices have fallen so much that even should earnings fail to increase in 2012, equities are inexpensive.

“What you’re seeing is a growth scare,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc., said in a telephone interview on Sept. 29. His firm oversaw $643 billion as of Aug. 31. “The question is, how much of that is priced in. I’d say that if we don’t have a double-dip recession, if earnings just stay flat, these valuations are reasonable. The market already expects those downgrades.”

http://www.bloomberg.com/news/2011-10-03/s-p-valuations-below-recession-levels-since-1957-as-analysts-cut-estimates.html?cmpid=bit