US - Risk of recession built into equity prices

We believe that the proximate cause of the US equity market's weakness in the fourth quarter of 2007 and the early days of 2008 is that it has begun discounting a recession here. In fact, the market is behaving as though a US recession is a virtual certainty. While we disagree that it is a foregone conclusion, recent developments have led us to believe that the odds that we are already in, or on the cusp of, a recession are now greater than 50/50. But from a pure valuation standpoint, our analysis suggests the current fair value multiple of the S&P 500 is about 18.5x earnings, based on ...