Sure, the rally over the past few months has been a fun ride, but how quickly we forget: Between Feb. 9 and March 9, the Dow Jones Industrial Average dropped over 1,700 points. Repeat another of those plunges, and the "Dow's going to zero" camp might start gaining attention again.

Of course, we're not going to zero. No matter how ugly the markets get, the ferocity of what we've been through over the past 18 months can't continue for long.

But here's the bad news: That zero is out of the question doesn't mean stocks won't plummet from here. In fact, they could fall much, much further.

And history agrees.                                                                                                   

What goes up ...  
The history of long-term market downturns is hideous. When times are bad, markets don't just get drunk with fear -- they start downing vodka shots of fear. When panic sets in, nobody wants to own stocks at any price. Investors' palms begin to sweat every time they watch CNBC. They bury their heads in the hope that the pain will go away. They throw in the towel and sell stocks indiscriminately. In short, things get really, really ugly.

Just how ugly? Have a look at the average price-to-earnings ratio of the entire S&P 500 index over these three periods of market mayhem:

Period

Average S&P 500 P/E Ratio

1977-1982

8.27

1947-1951

7.78

1940-1942

9.01

And while stocks have plummeted over the past year, so have corporate earnings: With Standard & Poor's predicting the S&P 500 will earn $29.48 per share in 2009, the index currently trades at almost 33 times earnings. Compare that with the above table, and it's pretty apparent that stocks could fall much, much further than they already have, just by returning to the lows they historically hover around during downturns.

Assuming earnings stay flat, revisiting those historically low levels could easily mean a 50% decline from here. For the Dow Jones Industrial Average, that could easily mean Dow 5,000, or worse. Now, I'm not predicting, warning, or forecasting -- I'm just taking a long look at history.                           

But what if it did happen?  
What would happen to individual stocks? Here's what a few popular names would look like trading at P/E ratios of 8:

Company

One-Year Return

Decline From Current Levels With P/E of 8

Coca-Cola (NYSE: KO)

(10%)

(61%)

Oracle (Nasdaq: ORCL)

(10%)

(56%)

Microsoft (Nasdaq: MSFT)

(21%)

(34%)

Goldman Sachs (NYSE: GS)

(16%) Continued...