Jamie Dimon says don’t be surprised if the S&P 500 loses another one-fifth of its value. While such a plunge would fray trader nerves and stress retirement accounts, history shows it wouldn’t require any major departures from past precedents to occur.

Judged by valuation and its impact on long-term returns, the JPMorgan Chase chief executive officer’s “easy 20 per cent” tumble would result in a bear market that is in many regards normal. A decline roughly to 2900 on the S&P 500 would leave the gauge 39 per cent below its January high, a notable collapse but one that pales next to both the dot-com crash and global financial crisis.

The price implied in Dimon’s scenario is roughly the index’s peak from 2018, the year when President Donald Trump’s corporate tax cuts took effect and an equity selloff forced the Federal Reserve to end rate hikes. Rolling back the gains since then would leave investors with nothing over four years, a relatively long fallow period. But, given the force of the bull market that raged before then, it would cut annualised gains over the past decade only to about 7 per cent, in line with the long-term average.

Nobody knows where the market is going, Dimon included, and much will depend on the evolution of Federal Reserve policy and whether earnings stand up to its anti-inflationary measures. As an exercise, though, it’s worth noticing that a drawdown of the scope he described isn’t unheard-of, and would strike many Wall Street veterans as a justifiable reckoning in a market that had been carried aloft by the Fed’s generosity.

Falling interest rates had “been great for valuation multiples and we’re unwinding all of those,” Michael Kelly, global head of multi-asset at Pinebridge Investments LLC, said on Bloomberg TV. “We’ve had easy money for a long time and we can’t fix all of that very quickly.”

At 34 per cent, the average bear market since World War II has been a bit shallower, but the drops vary enough that a 40 per cent plunge fits within the bounds of plausibility. One reason the current drawdown may have legs is valuation. In short, even after losing $US15 trillion ($23.9 trillion) of their value, stocks are far from being obvious bargains.

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At the low last month, the S&P 500 was trading at 18 times earnings, a multiple that is above trough valuations seen in all previous 11 bear cycles, data compiled by Bloomberg show. In other words, should equities recover from here, this bear market bottom will have been the most expensive since the 1950s. On the other hand, matching that median would require another 25 per cent drop in the index.

“We had a period of a lot of liquidity. That’s different now,” said Willie Delwiche, an investment strategist at All Star Charts. “Given what bond yields are doing, I don’t think you can say a 40 per cent peak-to-trough decline is out of the question.”