Despite their recent plunge, United States stocks still need to lose another 16.53 per cent between now and 2010 to get back into line with historical valuations, according to ABN Amro.
The Dutch investment bank has extended work by famed Yale University economic professor Robert Shiller whose book Irrational Exuberance documented the bubble in US equity prices.
'Given the extreme measure that the Shiller measure got to in 2000, share prices are expected to average 10 per cent real losses over the following decade,' ABN said.
'Allowing for 2 per cent inflation that puts the S&P [500 Index] at around 700 in 2010. Ouch.'
The centre piece of his book was a chart showing the S&P 500 price to earnings (PE) ratio in 2000 surging to nearly 45 times - far above its historical average of 16 times and even the 1929 peak of more than 30 times.
ABN chief economist Kieran Davies found that the S&P 500 PE had since moved closer to its historical average as investors fled equities market and share prices slumped.
This was also because the 10-year moving average earnings base has been showing strong growth, though he conceded this had been a less important factor in the correction of the index back towards its historic average.
