How Much More Can The S&P 500 Fall From Here?

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Brace yourselves: The S&P 500 might still have 10%-20% more downside left in the tank. Yes, even after a rough ride in 2025. Here’s why the market may not be out of the woods yet—and the numbers don’t lie.

The “Sane PE Multiple” Says We’re Still Expensive

Let’s talk about sanity. Specifically, valuation sanity.

If we rewind to mid-2022 – the year the market got blindsided by aggressive rate hikes – we saw earnings multiples take a beating. So, what happens if we take a cold, hard look at every S&P 500 stock and assign each the lower of its current PE ratio or its mid-2022 PE ratio? That gives us a grounding baseline – let’s call it a “Sane PE Multiple.”

Now apply that to the latest net income figures. The result? The S&P 500 could have as much as 20% more downsidebaked in. That’s not bearish paranoia. That’s math.

Median Metrics Tell Similar Story

Let’s zoom out and take a look at the bigger picture.

• Median PE in Mid-2022: 19.6
• Current Median PE: 21.5
• Median Net Income in Mid-2022: $1.36B
• Current Median Net Income: $1.53B

If we keep the net income gains but revert the multiple back to 2022’s reality check (19.6), the market should only be 10%-15% higher than where it was in mid-2022. Currently, it is 35% higher. So, unless earnings skyrocket higher, valuations have a lot of room to compress. Another 10-20% drop from here? Absolutely plausible.

History Repeats Itself

Still not convinced? Let’s get historical. The S&P 500 has a well-documented habit of crashing hard during periods of economic stress. We’re talking:

• Dot-com bubble: Down ~47%
• Great Financial Crisis: Down ~55%
• COVID crash: Down ~34%
• 2022 drawdown: Down ~20%

Now, in 2025? We’re down just about 10% from the peak. Historically, that’s barely a sneeze. Another 10%, even 20% decline? Not only possible – it might be overdue.

This isn’t fearmongering. It’s a cold calculation: valuations are still elevated, historical crashes suggest more pain is very much on the table, and median metrics point toward more gravity in the system. Want to protect yourself better while exposing yourself to the upside? Consider investing in Trefis High Quality (HQ) Portfolio which, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics

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