In the past, there have been dives in the S&P 500’s valuation multiple similar to the one so far this year:
(1) The valuation deterioration in the early 1970s was associated with the devaluation of the dollar by President Nixon and the first of the decade’s two energy price shocks. Along the way, Franklin National blew up. Inflation was a protracted problem throughout the 1970s.
(2) The S&P 500’s P/E took a dive on Black Monday in 1987, when portfolio insurance triggered a stock market crash. Stocks recovered in 1988 as earnings remained strong, but the P/E didn’t recover until the early 1990s.
(3) The Tech Wreck of the early 2000s caused the P/E to drop, while 9/11 sent it into a freefall. It continued to fall during the housing bubble through the end of 2008.