The opinions expressed here are those of the author, a columnist for Reuters.

By Jamie McGeever

ORLANDO, Florida, April 7 (Reuters) - If a proper bear market is unfolding on Wall Street, then it still has a long way to go, especially if the U.S. economy tips into recession.

While the S&P 500 on Monday narrowly avoided what would have been the worst three-day selloff since the Great Depression, that doesn't mean we have reached a turning point. Stock valuations and earnings forecasts have fallen, but they still appear far too high when considering both previous market downturns and the immense economic turmoil being unleashed by U.S. President Donald Trump's protectionist trade agenda.

A U.S. recession this year isn't yet the consensus view – with only two big banks, JPMorgan and Barclays, officially calling one – but it almost certainly will be if Trump's tariffs stay in place and the rest of the world retaliates.

The consensus U.S earnings outlook certainly hasn't adjusted for what JPMorgan equity analysts say would be the "waterfall event" of a U.S. recession. They have lowered their 2025 earnings per share forecast to $250 from $270, adding that the risks are still skewed to the downside.

That essentially implies zero earnings growth this year compared to the consensus view of around 10%. The latter is optimistic, to say the least, in a world where the U.S. is hurtling towards stagnation or contraction, China is struggling to head off deflation, and Europe and other major economies are likely already tipping into recession.

Meanwhile, the 2026 consensus earnings growth forecast for the S&P 500 is 14%. It's difficult to see double-digit earnings growth this year and next when companies barely have any visibility about what will happen in the next few months.

THE $9 TRILLION SLUMP

The same applies to valuations. With the broader index flirting with bear market territory, it's worth considering how today's valuations stack up against those seen in recent decades when the market fell by 20% or more.

According to David Marlin of Marlin Capital, the S&P 500's median decline over 10 major downturns going back to the early 1980s is 22.7%, and the median trough in the forward price-to-earnings ratio is 13.0. The lowest of those P/E ratios was 8.0 during the stagflation period in 1982 and the highest was 16.0 in 1998.

The equivalent ratio today, with the index down around 17% from its peak, is still over 20.0. Not only is that above the historical median highlighted by Marlin, but also the general average over the past 30 years of around 17.0.

It's worth remembering just how much prices, valuations and earnings forecasts exploded in the last two years on the back of the 'Magnificent 7'-led boom. Logically, the higher you rise, the more downside there is when the turn comes, right?

Big Tech certainly is correcting. Nvidia's forward 12-month PE ratio is down to a six-year low of 20.0, and the broad S&P 500 tech sector's 12-month forward PE ratio has declined to 25.0, its lowest since November 2023. They were around 35.0 and 30.0, respectively, earlier this year.

But are these corrections enough to reflect the rising likelihood of recession? The answer is clearly "no", especially when considering that more than half of this year's total earnings growth is expected to come from tariff-sensitive sectors like tech and communications, as JPMorgan analysts point out.

Market panic wiped $5 trillion off the value of U.S. stocks in just two days last week and some $9 trillion since the market peak in February, much of that in Big Tech. So it is sobering to think that – if recession hits – there is likely far more damage to come.

(The opinions expressed here are those of the author, a columnist for Reuters.)

(By Jamie McGeever; Editing by Nia Williams)

((jamie.mcgeever@thomsonreuters.com; Reuters Messaging: jamie.mcgeever.reuters.com@reuters.net))