The stock market valuations have demonstrated tendencies to trend from rich to cheap and back from cheap to rich over long periods.  We call these long term trends secular markets.  This has nothing to do with religion or lack thereof.   We use secular to refer to periods longer than a cycle, referring to the Latin saeculum, meaning of an age or generational. We define valuation cycles in this example by P/E ratios utilizing the average of the past five years of inflation adjusted earnings.  Measuring P/Es using at least five years of earnings reduces cyclical fluctuation in the denominator.  

The chart above, depicting inflation adjusted earnings and S&P 500 prices (data from Robert J. Shiller) shows that earnings can fluctuate wildly.  The path of earnings (red line) gyrates wildly with business cycles, whereas the 5-year average generally follows the same path, it does not have the same volatility.  The swings in earnings are temporal and mean reverting to the long term trend, thus any valuation metric utilizing the current or even forward (unknown) earnings, is by definition as volatile and generally misleading.

Using current year or even forward earnings forecast, P/E ratios would have suggested that investors sell depressed markets and buy expensive markets.  The "smoothed" earnings method correctly reflected valuations, and was subsequently rewarded.

We can confirm these results by calculating the historic required returns for the dividend discount model.  We use the price, dividends, and GDP (Nominal) as a growth expectation (historic earnings growth is slightly less than nominal GDP) to determine the required return.  The results are the similar, bear markets begin with valuations such that the required return on stocks is below 8%. 

The following table lays out the four bear and four bull markets of the past century.  We define the turning pints in terms of valuation or required return, not by price alone.  This analysis suggest we are in a secular bear, and valuations (even at the troughs of 2002) have not been low enough from which to revert to a secular bull market.  There are cyclical bull and bear markets that reside within each secular trend that counter the longer term valuation expansion or contraction (the exception being 1929 to 1932, in which the valuation objective was reached in a few years).  These cyclical bull and bear markets are functions of earnings and prices, but usually not valuations.