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When Do Stonks Stop Going Down?

It depends... on a lot of things. If Tesla's were $100, everyone would drive them. When things are cheaper people get more interested as more people can afford 'things'.

P/E or Price to Earnings is a key indicator of how investors think about value. If the price of a stock is $100 and the earning of that stock per share is $10, then the P/E is 10 for that stock. Essentially it is valued at 10X what it earns. Investors are willing to pay $10 for every $1 of earnings that company can generate.

In the chart below, you can see the Mt. Crisis (the DOTCOM bubble in 2000) from any vantage point. Notice Mt. Covid (the money printing bulled of 2022) is the next highest peak to the right. At close to 50, people were willing to pay $50 for every $1 the company earns. Today they are willing to pay around 31X earnings after a drop from a peak of 43X.

Historically most recessions bottom when the P/E gets closer to 12. We could see markets move up from here as we have already repriced a great deal, BUT if this recession really takes hold the market will need to reprice lower to make things feel 'cheap' again.

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