Is October below or not? As he often does, Josh Brown documents the main debate among the stock cognoscenti. “You can divide everyone on Wall Street right now into one of two camps. Do we cut the October rate or not? I think we cut it in October,” said Brown, CEO of Ritholtz Wealth Management, on Tuesday on CNBC. Half Time Report. The most recent market bottom occurred on October 12, when the S&P 500 closed at 3,577. At the time, analysts were quite optimistic about 2023 earnings, expecting to earn $239, nearly 8% of 2022 earnings estimates. That translates to a forward multiple (P/E ratio) of 15 times 2023 earnings. The historical average multiple is about 17 times forward earnings. Here’s the problem: If October really is the bottom, it’s the richest in decades. “In all previous major market fundamentals over the past four decades, forward 12-month PE multiples have been 9-11x,” says Nick Raich at The Earnings Scout. If October is indeed the bottom, “it would be the most 12-month forward PE ratio below the market in more than 40 years.” Other strategists also note that the S&P 500, despite a 20% decline in 2022, is still trading at a rich valuation. “S & P 500 is overvalued by 11-25 pct even using relatively optimistic expectations of 2023 earnings,” Nicholas Colas at DataTrek said in a note to clients. Instead of $237, the estimate is now $229, and the current multiple is 16.7 times forward earnings. This gets to the heart of the problem: Something is wrong. Analysts and investors, for the most part, are still pricing in a shallow recession. That means earnings are very low, and multiples can stay high. If that happens, and we get a shallow recession, then prices and incomes aren’t crazy. If not, the market is very wrong. “Stocks have more significant downside if the market loses hope in a shallow, easily reversible recession,” Colas said.