S&P bear case shows median stock above bull-market peaks

New York

IF you're looking for a floor in equities, you may not want to look at research into the valuation of the average US stock authored by Leuthold Weeden Capital Management LLC. The study, published on Wednesday in a note titled How Far Could it Fall, examines a handful of indicators such as trailing price-earnings (P/E) and price-to-book ratios and compares levels now to past inflection points, namely the tops of bull markets and the bottom of bear markets since 1990.

The upshot is that equities have room to fall to get back in line with history. According to Leuthold chief investment officer Doug Ramsey, even after the 8.9 per cent drop in the Standard & Poor's 500 Index (S&P 500) since its May record, the median stock hasn't shrunk enough to match its average valuation at the last five bull-market peaks.