Excerpt from John Hussman's latest weekly essay:
Historically, durable bear market troughs – of the sort which have reliably produced long-term returns of about 10% or more over a variety of time horizons – have occurred at average price/earnings multiples near or below 11 (as usual, I generally calculate market P/E multiples on the basis of the price/peak-earnings ratio, where the denominator is the highest level of trailing net earnings attained for the S&P 500 as of the date of the calculation).
In fact, most of the explosive first-year gain of historical bull markets has represented a move up from P/E ratios averaging 8 or 9 (even lower in 1974 and 1982) toward a multiple of 11. Nor are multiples like that antediluvian – the S&P 500 last saw a price/peak earnings multiple of 11 in the early 1990's. For the record, the Los Angeles Times called me “one lonely, raging bull