With Stock Selloff Raging, Views Abound on Where It Will End

One thing to realize about a stock selloff: You won’t know it’s over until long after it ends. But that doesn’t keep people from trying to pick a bottom. Valuation, sentiment and history each form a basis for study.

Reversion to a mean is the expectation. Which mean to revert to is the problem. A straightforward model in which elevated valuations return to normal could imply either a garden-variety tumble, or a truly awful one, depending on how “normal” is defined. If a purging of animal spirits among overenthusiastic bulls is how you pick the floor, a case can be made that we’re not quite there.