Charts Show The S&P 500 At Risk Of Falling To 4,200

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After attempting a rally last Friday and on Monday, the S&P 500 is back to where it essentially closed last Thursday at 5,276. The Index has created its third lower high since it peaked on February 19’s close at 6,144. However, it will take a substantial decrease to create a lower low as the Index fell to a low close of 4,983 on April 8 and an intra-day low of 4,835 on April 7.

On April 9 I published a note titled, “A Simple Equation Shows How The S&P 500 Could Fall Another 20% Or More” that used Earnings times Multiple equals Price. The analysis in this article uses Price-to-Sales to determine where the S&P 500 Index could fall.

Carter Worth of Worth Charting published a report on Sunday that compared the S&P 500’s Price-to-Sales ratio over a 30-year timeframe. The first chart shows a double top of the Index’s Price-to-Sales ratio in 2021 and 2025 and a rising trend line from the market’s Covid low. With Worth’s trend line showing a Price-to-Sales ratio of 2.6x from the current 2.8x, the Index would fall by 7% from Friday’s close of 5,363 to 4,980.

Worth’s second chart uses parallel lines from the prior all-time high in the tech bubble. At that time the Price-to-Sales ratio topped out at 2.4x. At that valuation the Index would decrease by 14% to 4,600.

The last chart combines a rising trend line from the low reached in the Great Financial Crisis in 2009 and the parallel lines from the tech bubble. The two lines cross at about a 2.2x Price-to-Sales ratio. The Index would then decline an additional 21% to 4,200 which be almost a 32% drop from the all-time closing high of 6,144.

Equivalent earnings and valuation ratio

On a fundamental analysis vs. the technical one above the Index falling to 4,200 would equate to earnings decreasing by 7% to $250 this year and a P/E multiple of 16.8x, compared to the current 19.6x.

John Butters, Vice President and Senior Earnings Analyst at FactSet, publishes a weekly report on the S&P 500 which includes earnings and valuations. Over the past nine weeks the Index’s earnings have fallen 9 consecutive weeks from $273.63 on January 31 to $268.49 on April 11, and in two of the past three weeks earnings have fallen by $0.98 and $1.00.

The current P/E multiple of 19.6x is just below the 5-year average of 19.9x but above the 10-year average of 18.3x. It would not be unreasonable for the market’s multiple to fall given the uncertainty of what tariffs could do to the economy and if earnings continue to fall.