(Bloomberg) — Downward spiraling stocks are showing no signs of finding a floor. Brace yourself, because at least one forecasting framework says the bottom may still be a ways away.

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That’s an interpretation of data compiled by Leuthold Group, using a particularly bloodless standard of analysis that focuses not on investor psychology or positioning but strictly reversions to the valuation floors of past selloffs. In this historical lens, the Minnesota-based money manager sees precedent for an additional drop in the S&P 500 of between 11% and 32%.

Troubled times give voice to pessimists, and Leuthold’s downside studies are famously brutal, accentuating worst-case scenarios from past eras when investor faith was tried mightily. With the S&P 500 down 2% or 3% in four of the last six days, on the other hand, the time for a sober reckoning — however difficult — may have arrived.

“A secular bear market can drop well below the median valuation level,” Paula Mikl, senior vice president at Leuthold, said by phone. “If that happened to be the case, like 1973, 1974, or 2007 to 2009, there was significantly more downside.”

One of the reasons Leuthold’s model is still flashing downside is that it is based on valuation, a particular problem in today’s market, despite relentless selling pressure that is battering investors daily. Monetary stimulus and government spending last year sent the S&P 500 and Nasdaq Composite to levels relative to earnings and sales with few precedents since the dot-com bubble of the late 1990s.

Applying a suite of valuation metrics that compare shares prices to things like earnings, dividends and cash flows, Leuthold found that even after a decline of more than 20%, the S&P 500 still looks stretched when stacked against the historic norm. Against levels more common with the bottom of big selloffs, the picture gets uglier.

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To be sure, no one can predict with confidence the proper multiples that shares can fetch. But in today’s market, when the Federal Reserve is raising interest rates at the most aggressive pace in decades to tame red-hot inflation, and the growth outlook gets murkier with the pandemic and war lingering, a case can be made that the current multiple contraction has a chance of overshooting on the downside.

To account for that — basically to account for the fact that the S&P 500 is now in a bear market — Leuthold calculates the distance to a somewhat depressed historical valuation: the 25th percentile, to be exact. Based on that since 1957, the S&P 500’s implied level today is around 2,478. That represents a 32% drop from where it closed Thursday. Updated for a shorter interval — one that begins in 1995, a period of higher multiples and higher returns on intangible assets — the fall would be about 11%.

Already, the market has endured one of the fastest valuation contractions in history. After peaking above 30 times earnings a year ago, the S&P 500’s multiple shrunk by 43% — almost matching the size of the contraction during the entire 2000-2002 crash.

Brian Bost, co-head of equity derivatives in the Americas at Barclays Plc, is cautious, given a flurry of headwinds weighing on the market, from inflation to a hawkish Fed and geopolitical tensions.

“It’s the culmination of all those that’s creating a little bit of a storm that is much more complex than just one asset bubble popping,” Bost said by phone, referring to a broad selloff across assets from bonds to cryptocurrencies. “In order for things to get better, they definitely have to get worse first.”

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