The findings from my research of the S&P 500’s PE multiples and consumer price index (CPI) volatility from 1920 to 2022 indicate that the probability is high for the secular bull market which began in 2009 to have ended at the index’s 1/4/2022 all-time high of 4818.62.  Assuming that January 4th was the high, a new secular bear market to replace the 2009-2022 bull, began on 1/4/2022.  Based on the index’s performance for all prior secular bears since 1929, the S&P 500 will:

  • Decline 45% to 85% from its 2022 high
  • Not exceed 1/4/2022 all-time high until 2030, at the earliest

The January 4th high prediction is based on the findings from my empirical research of the S&P 500’s Basic and Shiller PE multiples at the index’s extreme cyclical and secular highs from 1929 to 2022.  The research resulted in the following discoveries and the development of the first ever PE multiple which adjusts for inflation and deflation:


  • Discovery that the Basic PE multiple, taught by business schools since the 19th Century, is worthless for determining whether or not the S&P 500 is undervalued or overvalued. The Basic’s average multiple of 19.5 at the S&P 500’s extreme cyclical and secular lows was less than one point from the Basic’s 20.4 average PE multiple at the index’s extreme highs from 1921 to 2022.  Even worse, the Basic’s five highest multiples from 1871-2022, occurred precisely at the index’s 2000-2009 secular bear bottom.
  • Development of the AlphaTack PE (AT/PE), a proprietary PE multiple. AT/PE is the only multiple which is adjusted for inflation and deflation.
  • Discovery that AT/PE and Shiller second highest and Basic’s third highest PE multiples since 1929 occurred on 1/4/2022. The table below depicts the S&P 500’s five highest ATPE, Basic and Shiller PE multiples at the index’s extreme highs from 1929 to 2022.  The highest multiples ever computed for the three occurred on March 24, 2000.
  • Discovery of the negative PE multiple. The AT/PE’s development enabled a negative PE to be calculated for the first time in history.  The AT/PE’s 10 lowest monthly PE multiples from 1880 to 2022, which ranged from -4.41 to -8.35, all occurred during the 1909-1921 and 1929-1942 secular bears.  The S&P 500, from its lowest and negative PEs in 1921 and 1932, increased by a minimum of 300% within 5 and 8 years respectively. 

The parameters to identify the S&P 500’s extreme cyclical and secular highs and lows which qualified for the empirical research of the S&P 500’s PEs are as follows:  

  • Minimum 36% increase from an extreme low to an extreme high
  • Minimum 28% decrease from an extreme high to an extreme low

The two charts below depict all of the S&P 500’s qualifying extreme highs and lows from 1928 to 2022.  A list of all of the qualifying highs and lows for the S&P 500 from 1928 to 2022 is available at AlphaTack.com.

Discovering that the basic PE multiple is of little value was not a surprise.  I had concluded back in 2002, from my post mortem of bankrupt Enron’s Financial Statements, that EPS (earnings per share) was an unreliable indicator for determining the value of a share or the financial condition of a company.  See, “High Concept: How to Spot an Enron”, Inc. Magazine November 2002.  

Yale Economics Professor and Nobel Laureate Robert Shiller also had concluded that the basic PE was insufficient.  He created the Shiller PE for the S&P 500, which is more reliable than the Basic PE.  However, after analyzing Shiller’s PE, a deficiency was discovered.  The Shiller PE multiple does not adjust the multiple for inflation or deflation.

Shiller, instead of adjusting the PE multiple, adjusts a business’ earnings, the PE’s divisor for inflation or deflation.  The adjusted earnings are then utilized to compute the multiple.  The problem with adjusting the earnings up or down is that the impact on a share multiple is nominal.  For example, $1.00 per share of earnings in a 10% inflation or deflation environment is adjusted to either $0.90 or $1.10 by Shiller.  Thus, Shiller’s method for calculating a multiple suppresses PE multiple volatility.

The growth rates and the earnings, revenue and cash flow multiples which are utilized to value a business must be adjusted for inflation or deflation.  In an economy with 0% inflation/deflation, a business growing at 10% would have a 10% growth rate.  For a business growing by 10% in an economy which has 5% inflation the net growth rate for the business would be 5%.  It’s because half of a business’ growth would be attributed to price increases.

The unadjusted or Basic PE multiple of a business has historically been based on an old Wall Street rule of thumb  which says that a business’ fair PE multiple is equivalent to its earnings growth rate.  Under the rule, which does not adjust for inflation or deflation, the multiple for a business growing at 10%, would be 10.  However, for a PE multiple to be precise, it must be adjusted for inflation or deflation. 

Another rule, the Rule of 20, was developed in the 1970s to adjust for inflation or deflation.  Under the rule, the inflation rate is added to and the deflation rate is subtracted from the basic PE.  See also Yahoo Finance:  You’re probably using P/E ratios incorrectly”.  For example, if the shares of a company growing at 10% trade at a PE multiple of 10 in an economy which has 5% inflation, the net PE multiple would be 15.  It’s because half (5%) of the company’s 10% earnings growth is derived by inflation and not organic growth.  Thus, the rate of inflation must be added to the PE multiple for a company or an index.  Conversely, a business, with a PE of 5 growing at 5% in an economy with 10% deflation, the rule equivalent net PE multiple would be -5.  The multiple would be negative since the deflation rate is subtracted to calculate the actual multiple for the shares.    

The conclusion, from my research of the S&P 500’s Basic and Shiller PE multiples and consumer price index dating back to 1872, was periods of high consumer price index (CPI) volatility (sustained periods of inflation followed by sustained periods of deflation) highly correlated with severe stock market volatility.  Since neither of the multiples addressed the inflation/deflation issue, the AlphaTack PE multiple (AT/PE) was developed to fill the need.  The AT/PE utilizes the average of S&P 500’s earnings for its prior 10 years to compute its base multiple.  The percentage increase in the monthly CPI or inflation is then added to the AlphaTack core PE to compute the AT/PE.  The percentage decline in monthly CPI or deflation is subtracted from the AlphaTack core PE.  The AT/PE is the only PE which adjusts the PE multiple for inflation or deflation.

The table below contains the average highs and lows for the AT/PE, Shiller and Basic PE multiples at the S&P 500’s qualifying extreme lows and highs from 1921 to 2022.

A good example of the AT/PE’s accuracy is March 1980, which had an inflation rate of 14.76%, the highest since June 1947’s 17.65%.  In March 1980, Shiller’s PE was 8.83 which indicated that the S&P 500 was undervalued when compared to the average Shiller PE at the S&P 500’s qualifying highs in the above table.  The AT/PE’s PE of 27.81, for March of 1980, was more than 100% above its average low of 13.4.   The multiple was also above its average high of 24.8.  From its March 1980 high to the S&P 500’s August 1982 bottom, the S&P 500 declined by 10.6%. 

The bar chart below depicts the S&P 500’s Basic, Shiller and AlphaTack (AT/PE) PE multiples at the index’s extreme highs from September 16, 1929 to January 4, 2022.   From 1961 to 2022 the AT/PE was the highest multiple for all but one of the qualifying S&P 500 highs with the exception being 1987.  Since 1946, the AT/PE has been highest of the three multiples at the S&P 500’s extreme qualifying highs.

The line charts below depict the AT/PE’s multiples at the S&P 500’s qualifying extreme highs from 12/31/1928 to 1/1/2022.

The table below contains the US’ record setting months for inflation and deflation from 1929 to 2022.  In March of 1947, the S&P 500 was a sell according to the AT/PE’s S&P 500 multiple of 35.23, which was well above its 24.8 average at the index’s qualifying extreme highs.  According to the Shiller and Basic multiples the S&P 500 was a buy.  Both multiples of 11.29 and 11.94 were below their historical averages of 12.5 and 19.6 respectively in March of 1947.  From March 1947, to June 1949, the S&P 500 declined by 7.8% from 15.16 to 13.97.   

For October 1932, the month with the highest rate of deflation (-10.7%) from 1929 to 2022, the AT/PE’s multiple was -4.07.  The negative multiple indicated that the S&P 500 at 6.42 was substantially undervalued.  By May of 1933, when the AT/PE went from negative to 1.15, the S&P 500 had climbed back to 9.64, a 50% increase.  By December 1936, the S&P 500 had risen to as high as 17.36, a 170% increase from October 1932.  The index’s AT/PE was 20.4.

The 1930s were absolutely the best years throughout history to invest in the US stock market.  The chart below depicts the 18 consecutive monthly negative AT/PE multiples for the S&P 500 from November of 1931 to April of 1933 ranging from -1.35 to -5.47.  From the beginning of the negative AT/PE multiples period, the S&P 500 declined by 60% from 10.4, to its June 1932 post-Crash of 1929 and great depression low of 4.4.  At the low, the S&P 500 had declined by 86.2% from its September 1929, 31.86 all-time high (31.86) one had to be extremely savvy or insane to buy stocks in 1932.

The chart below depicts that had the from November 1931, the start of the consecutive negative PEs period to December 1936, the S&P 500 increased by 100%.

The table below depicts the five highest five multiples for each of the AT/PE, Shiller and Basic multiples which coincided at a qualifying extreme S&P 500 high from 1929 to 2022.  For those highs which were shared, the AT/PE’s multiples were the highest.  The five highest multiples for ATPE and Shiller were the same.  However, they had different rankings.  The Basic PE did not have September 1929 or October 2007 in its top five.  The Basic’s 4th highest PE multiple of 26.27 occurred in July 1933, during the best period ever to buy the S&P 500.  For July 1933, the AT/PE was 7.08 and the Shiller PE was 13.75.

The table below depicts the AT/PE, Basic and Shiller PE multiples at the S&P 500’s secular bull market highs from 1929 to 2022.  With the exception of 1929, the AT/PE’s S&P 500 multiples were substantially higher than Shiller’s multiples at the secular bull highs.  Both the AT/PE and Shiller multiples were higher than the Basic’s PE multiples.

The table below depicts the S&P 500’s eventual price targets as computed by the AT/PE, Shiller and Basic average PE multiples at the index’s extreme lows from 1921 to 2020.   The targets are based on Standard & Poors’  forecasted S&P 500 calendar 2002 earnings of $208.60, an increase of 6.9% as compared to 2021. 

The 41.9% and 45.6% declines for the S&P 500 based on the targets of the AT/PE and Shiller PE multiples in the above table are in the same ball park as the S&P 500’s 47% minimum decline for all of its prior secular bears in the table below.

The statistics in the above table, findings from my research of the S&P 500’s PE multiples and Consumer Price Index’s monthly inflation and deflation readings from 1920 to 2022, provide the rationale for the probability being high that the S&P 500 will decline by a minimum of 45.6% at the low for the secular bear market which began on January 4, 2022.  The S&P 500 is also not likely to exceed its all-time high of 4818.62 until 2030 at the earliest since the minimum duration of secular bears since 1929 is 9 years.  A secular bear investing strategy is highly recommended.

To learn why secular bears are so dangerous and the investment strategies to deploy for a secular bear view videos below and read “Bear Market Phases Are Like ‘The Revenant”, by Lance Roberts.

The Bull & Bear Tracker (BBT) algorithm which gained 209% vs S&P 500’s 56% from 2018 to 2022 is the ideal vehicle for a secular bear market. The BBT trades inverse ETFs which increase when the S&P 500 declines. The BBT had significant gains versus the S&P 500’s significant losses for Q4/2018 and Q1/2020, its two most volatile quarters since 2009. See March 3, 2022, “BBT gains, S&P 500 loses for first two months of 2022”. For more information about the BBT, track record updates and how to get access enter email address below.

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Finally, my “Acceleration to Digital Economy; why Stock Indices quickly reached new all-time highs after 2020 crash” article is highly recommended.  It provides the rationale for why the 2020 crash proved to be a dip buying opportunity which capitalized on the leading digital and tech companies including Apple, Amazon, Facebook, Google, Microsoft and Netflix being undervalued.   However, those who deployed the dip buying or ride-out-the- storm strategies during 2018 and 2020 periods of volatility and who believe that the S&P 500 will quickly recover back its January 2022 high are in for a rude awakening.

Michael Markowski, a 45-year financial markets veteran, is the Director of Strategies for AlphaTack whose slogan is “growing assets against the wind”.  He conducts empirical research of the past which he then utilizes to develop algorithms to predict the future.  His research of Enron’s Financial Statements after its infamous bankruptcy led to the development of a Cash Flow Statement algorithm.  The algorithm was utilized to predict a “day of reckoning” for Lehman, Bear Stearns, Merrill Lynch, Morgan Stanley and Goldman Sachs in a September 2007, Equities Magazine article.   Michael’s research of prior market crashes led to the development of the Bull & Bear Tracker (BBT) algorithm.  From 2018 to 2022, the BBT gained 209% vs. the S&P 500’s 56%.  His predictions of all periods of heightened market volatility from 2008 to 2020 and the S&P 500’s exact March 23, 2020 bottom are media verified.