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There are many mice out there who are viewing this value trap as a great big tasty piece of cheese with no surrounding trap.

Stocks are not even close to being historically “cheap”. All of these investors come on TV using PE ratios as their metric to value the stock market, but they’re using estimates that are far too high and have been adjusting lower every week.

If the S&P retraced 40% of its earnings growth (as it did in the last few recessions) we would see $60/share on the S&P which would give us a PE of 15. That’s fairly average in historical terms. I, however, believe this recession will be substantially worse than prior recessions and we’ll overshoot to the downside and likely hit $50 in which case the market has a PE of 18 and is still very expensive.

In either case, the market does not trough at high valuations. Historically, it bottoms in the low teens or so. That means we could very well see 700 or lower on the S&P before stocks are genuinely cheap.

It might not happen until the first quarter rolls around, but don’t get tricked into thinking this market is cheap. It’s a classic value trap.