If the US went through -1% GDP growth for the next two years what would the S&P 500 go to? I am interested to see what older, experienced people have to say. GDP growth seems to be the norm. But what happens to equities when the economy contracts for years at a time?
In my opinion there is not a quantifyable number or valuation (PE) that one could come up with in that type of situation. A long term recession would cause a large uptick in unemployment. Many of the unemployed would raid investment holding just to survive, hard assetts would not be easy to liquidate unless at a true distressed fire sale level. Regardless of "valuations", a security is only worth as much as someone is willing to pay for it, thus the current equities trading below book value. The scenario is not all that far fetched.