"I believe what we are seeing is leading to a new lower low."
That's entirely possible because the S&P500 needs to return a greater profit now in order to factor in the new Risk Premium in view of inflation and volatile markets. To do this the PE ratio needs to go below average, not way above average where it is now.
More profit going forward is going to be difficult with inflation raging, higher interest rates, global slowdown, recession, conflicts and the cost of capital going through the roof.
The top chart plots the cost of equity to US companies. As you can see, it has gone up considerably due to higher interest rates and greater risks.
The bottom chart shows what needs to happens to the PE to adjust for inflation (like it did from 1970 - 1980). For the PE ratio to go down (below average), either profits need to go up, or the price of stocks needs to come down. It's hard to see how profits are going to go up in this environment without the fed printing more money and splashing it around.
https://seekingalpha.com/article/4571595-data-update-2-for-2023-rocky-year-equities
https://www.currentmarketvaluation.com/models/price-earnings.php
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