A further measure that has signalled market tops and bottoms over the years is known as q. This refers to the ratio of the value of a company to its net worth - the value of the equity on its balance sheet. Again, over time, the market value of a company will tend to converge on this measure. Again, after being overvalued for more than a decade, stocks now appear to be at about fair value according to q.

T he final, critical element in the equation concerns the future. How bad will this recession be? Usually, market bottoms are related to recessions, with markets generally beginning to recover when the economy is on the floor and some months before a broader upturn.

For those who believe this recession will end in the early months of next year, therefore, there appears to be an argument to buy stocks now, as they already implicitly discount a long and severe recession. Tim Bond, of Barclays Capital, suggests that equities might present the "buying opportunity of a generation". According to Barclays' model of implied economic forecasts from credit spreads, the market is discounting as much as a 15 per cent dec-line in real gross domestic product for the US next year. By way of comparison, the average annualised GDP contraction during the Depression was 14.1 per cent and the worst single year, 1932, saw a contraction of 23 per cent.