Nominally, I think the bottom would be around 350-500. But, I do expect the general equity market to have higher dividend yields as this reflects increased discounting by the general population. I expect dividend yields for the general market to be at least 200 bp higher than 10 government year bonds as the market because less liquid as there would be less market participants (so stocks would also have a "liquidity premium"). I also expect the market would not price in economic growth too and the 200 bp number will also be applied to companies with solid cash flow and little debt. Those companies might lose nominal value in the future, but of course, they would outperform others. In addition, a sell-off of dollar denominated fixed income assets would also lower prices as this drives up yields and exacerbate deflation further. I do not expect a level of sub 100 because unlike the NASDAQ bubble, many of these companies do something for cash flow, and I do expect many of the companies removed by the Darwinian flush to be delisted and replaced with stronger companies.
But the best answer for when the bottom would occur would be in the form of a rhetorical question without an immediately quantifiable answer, and one has to consider game theory considerations such as looking at VIX and the put/call ratio which provide information about market participants' sentiment. The biggest question one has to answer is when the Darwinian flush of the equity markets would finish. This is not a question of intrinsic value (as stocks are not solely valued on valuation, but on discounted cash flow according to the standard Gordon model), but again a large part is based on people's time preferences. Since people do not save as much in the US, the discounting rates would be higher than in the Japanese deflation which would have a stronger short term effect on stock prices causing the decline to be quicker. Also, in Japan, these was less labor competition and securer jobs after the asset bubble burst which is another reason for increased discounting. The deflationist paradigm has help those who embraced it understand this crisis. Another way to ask is to question when would everyone realize that "buy and hold" may work for some people (such as Warren Buffett), but does not work for everyone? When people start realizing that equities have downward volatility in long run as well as the short-run as evidenced by the Japanese equity market for the last two decades? When do people who are saving for education, housing, and retirement leave the equity market (in a way similar to a Darwinian flush) when they realize that “long beta” is a bad “investment” “strategy” as they start demanding liquidity? Even people who are currently bullish (in the long term, not technical traders who go long in anticipation of a bear market rally) on equities argue that if you need liquidity, then do not put money in the stock market. This is the best argument I see for being bullish on equities, but it hasn’t convinced me.
Even that article confirms some of my views:
"If you need a certain amount of cash within a 3-5 year time period, it cannot be in stocks. The vagaries of stock prices on a five year basis are unknowable, but history tells us that prices usually revert to fair value over five year periods. For example, if you need money for a down payment on a home, tuition payment, or emergency, that money cannot be in stocks. It must be in cash or bonds. If you are in retirement and drawing from your portfolio for living expenses, you must have a certain allocation in bonds or cash to fund current needs"
Fixed-income will be somewhat popular again because the opportunity cost of fixed-income is lower because the return on most assets would be lower and most likely negative. Of course, treasuries are safe (relatively) "nominal assets" were one can get their principal + interest back. (Image a world when the US government defaults... would that be a world that would be investable? ... would it be an "anthropically" possible scenario?) (See Peter Thiel's speech for a discussion about "anthropic investing" although he did not use those terms.) The return on equities would be lower now, and have a negative Sortino ratio (during this bear market), as people suddenly realize that equities are risky. The high nominal return on equities during the last three decades (which some of the gains were erased in the last two years) is partly caused by increased earnings of companies, but a decrease in the equity risk premium, as people who didn't know anything about security analysis bid up the price of stocks. This causes a reflexive process encouraging more people to invest in stocks as it went up in "value" when a large portion of the gains was caused a reduction in the risk premium. Many people seeking liquidity would take money out of the stock market (since they cannot play "for the long run.") The increase in liquidity demand and the epiphany that equities do experience negative volatility causes an increase in the equity risk premium which then causes a decline in equity prices. This might not decrease the "inherent value" of equities, but it would decrease the nominal value. Of course, other factors such as pricing in no dividend growth for years would be priced in causing its price to go down. If one wanted to shun potential nominal volatility (which means protection from negative volatility, but eschewing positive volatility), one would turn to nominal assets such as Treasuries and other bonds. If they have a high-risk tolerance, they might go to municipal or corporate bonds instead of Treasuries.
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