Historical rate of return on stocks is about 7%. So in theory, a stock trading at a price to earnings ratio of 14 or less is good value, whereas a stock trading at 15 times earnings is not so much.

However, other factors could play a part, as certain industries are favoured over others, risk, projecting earnings growth, etc.

As such, you can make the argument that stocks are overvalued because they're trading at all time or near all time highs in terms of price to earnings ratios and other metrics. And especially so now given that projected future earnings will have dropped considerably while stock valuations have not.

If many restaurants, event spaces, etc. fail then it’s possible many people will have to liquidate their savings. This sell pressure would push down prices and likely cascade. The market thus far has been protected by stimulus funds, generous ui benefits, etc. Could that slack be taken up? Sure but it seems unlikely, especially with a second wave of shutdowns. Trying to predict the bottom or top is a fool’s errand. I’m also not sure how ETF/Index funds dispose of assets when they’re sold. They may be a dam holding back a flood.

There's a good interview with Michael Mauboussin[0] in which he mentions the power of regression to the mean and base rates. He gets those ideas from Daniel Khanmen, I think. Anyway, an appropriate price is impossible to predict ahead of time, but using reversion to the mean as your guide, you see that we're pretty overvalued right now.

We're above the mean earnings ratios, FCF yields, etc, while at the same time knowing that we're almost certainly in the first leg of a major recession, and a period unprecedented economic uncertainty.

I think the bear case is much stronger than the bull case right now.

[0] https://www.youtube.com/watch?v=X5xoKZBcS4Y

The answer is they don't know how to value cashflows or businesses, they just buy brand names they like.