We have a 10 per cent correction in hand. Before the sell-off, the S&P500 traded at 16.6X forward earnings. It trades at 15X times now. The 10-year average is 14.1.
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What that tells us is that for this correction to be over, we have to see annual earnings estimates for the S&P500 stocks rise. Since the Fed did not hike rates, that ebullient thesis is not looking too solid. That leaves a volatile sideways market in play, or sadly, another 10% leg down in this correction to the historical average of S&P500 valuations, or even lower. It’s not all bad news, but more weight placed on sideways and negative scenarios leaves the fear in this markets at a very high level. Hence, I think this S&P500 correction is sideways or lower for the time being.
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