The popular wisdom that bear markets occur at expensive valuations is unsubstantiated fiction. The truth is bear markets occur all the time. The chart below shows all declines from the high water mark of the S&P 500 Index back to 1900. In the U.S., there were 14 bear markets with declines of 20% or greater and many more pullbacks of at least 10%.
The chart below plots the distribution of monthly observations of PE ratios on the S&P 500 Index in blue. The red numbers above each PE range indicate the number of times a bear market START occurred in the PE range. Of the 14 bear markets, 11 have commenced at PE levels BELOW the current PE valuation of 20.6x.
Valuation is an incredibly effective individual stock selection factor, if you have a three to five year time horizon. Over the last five decades, the least expensive stocks have outperformed by an average of 4-6% annualized depending on the capitalization range you are researching. But, overall valuation is a notoriously poor indicator for predicting short term market movements.