We investigate stock returns, earnings growth, interest rates and the relative valuation of US equities following the 22 major bear market bottoms from 1881-2011. We find that large, sustainable bull market returns are associated with market bottoms where stocks' earnings yield expands...

We revisit the conventional wisdom that high market P/E ratios forecast negative future stock returns. We identify a significant break in the stock return-P/E relationship at high levels of the market P/E. Starting from market P/E ratios of 21 or greater, 10-year real returns are in line with...