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...
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