The starting valuation matters! When P/E starts at relatively lower levels, higher returns follow—paying less yields more. When the market P/E starts at higher levels, subsequent returns are lower. This graphical analysis presets the compounded returns that follow over the subsequent ten years based upon the starting P/E ratio.

The June wave top in the Russell 3000 has been slowly unwinding lower. The duration and aggregate direction of the waves since June illustrates this bearish character. Combined with historically high sentiment across all investor typee paints an extremely bearish posture for stocks.