Investing.com -- Assuming that last month marked the local peak for the S&P 500 , the current price-to-earnings (P/E) ratio decline in the index represents the fastest and most severe compression in the last three years, according to Barclays strategists.

This compares the current downturn with peak-to-trough declines of at least 5% since the 2022 bear market.

The strategists pointed out that this P/E ratio contraction is particularly interesting because, unlike previous near-corrections, the market was not positioned with overly extended records.

“Prior (near-)corrections were preceded by record SPX futures positioning among long-only investors (LOs), extended systematic equity longs and downside asymmetry in CTA flows,” strategists led by Venu Krishna said.

“We think this frames the current pullback as less of a technical unwind and more of a fundamental reassessment of the growth outlook amid an increase in economic and policy uncertainty,” they added, particularly given there is “some degree of retail-driven "exuberance" having been priced into equities since the election.”

In terms of finding market support, Barclays notes that despite an aggressive downtick to 21 times next twelve months’ (NTM) earnings per share (EPS), there could still be further downside.

The S&P 500’s median valuation over the past two years has been around 20 times, which is also where the index found support in the trailing twelve months.

The investment bank anticipates firmer support at this level, assuming a mild deceleration in first-half GDP growth and a trend-like trajectory for full-year 2025 EPS.

Without a “Trump put,” a term that refers to pro-business policies, such as tax cuts and deregulation under Trump that provide a safety net for equities, it could “get worse before it gets better,” for equities, strategists concluded.