1. Earnings will get absolutely slaughtered over the next few years. I estimate corporate profits on average to fall atleast 70% from current levels.
2. The dividend yields that investors will demand at the end of this bear market will be unprecedented. Risk premiums will go to historic highs!
The average yield over the last 100 years on US equities has been approx 6%. At bear market troughs, yield have often soared above 10%. The yield on the DJIA and sp500 currently is around 2% !!
So, falling earnings will cut the DJIA from its current level of 7,500 to approx 2,000 (calculated assuming no change in the earnings multiple).
Additionally, the higher yield demanded by investors (10% vs today's 2%) will impact the DOW by a factor of 5, resulting in an index level of approx 400.
These are very rough numbers... but you get the idea!!
