As the dislocations of the last few years recede, it gets easier to see where the stock market got too far ahead of itself in 2021 and then dropped too far in the bear market that followed. That’s why I tell growth investors that any company that has expanded its business since 2019 is a buy whenever you can find the stock trading below 2019 levels.

It’s just basic math, really. The economic environment in 2019 was pretty similar to what we face now. The Fed was raising interest rates. The biggest companies had hit an earnings wall. And there were whiffs of a slowdown in the air.

Of course the pandemic hit out of nowhere a few months later. But before COVID hit the dictionary, Wall Street was already coming off a pretty bad year. The S&P 500 had only raised the bottom line by a whopping 0.9% . . . a stall by any standard.

And yet people felt pretty upbeat about the future. Big stocks commanded prices close to 19X earnings even though growth in 2020 looked more than a little anemic. Adjust for the anticipated growth rate at the time and people were happily buying those stocks at a price of roughly 2.7X earnings divided by projected growth, or the conventional “PEG” ratio.

Here we are in 2023 and growth looks more than a little anemic. But it’s a little higher at 1.2% than what we got in 2019 and then it’s starting to look like we’ll see that growth rate jump beyond 12% for the S&P 500 next year.

That growth rate incorporates a likely recession, by the way. Wall Street analysts aren’t blind to the big picture. If anything, the recession is already happening inside Corporate America and might continue until close to the end of this year.

Either way, right now, the market as a whole is a little cheaper than it was right before the pandemic hit. And adjusted for anticipated growth, it gets even cheaper. This is important.

Figure the S&P 500 currently trades at 18.5X projected earnings. By 2019 standards, that’s a 2% discount . . . not breathtaking but if you didn’t sell in late 2019, there’s no reason to sell until the market at least resolves that valuation gap and probably climbs significantly from there.

Factor in anticipated growth and the gap gets ridiculous. The PEG drops below 1.5X compared to 2.7X in early 2020. That’s roughly half of what these stocks were worth then as an expression of earnings and growth rate.

Granted the Fed has been more aggressive in this cycle, but if these companies have taken all the Fed can dish out and are still looking to get back to growth next year, I’d rather take my chances in the market. After all, we were in the market in late 2019 and early 2020.

We stayed in the market through the COVID crash and were eventually rewarded. Right before the pandemic hit, the S&P 500 was cruising above 3,300. Here we are now, about 7% below the giddy zero-rate peak but a comfortable 32% above the pre-pandemic high.

Guess what? Because year-over-year earnings compound over time, the S&P 500 is now 38% bigger in terms of the fundamentals than it was in those weeks before the pandemic hit. Earnings are up 38%. The stocks are up 32%.

Yes, the stocks are bigger than they were in the pre-COVID era. I get it. After a bubble, people are terrified of stocks that have gotten too far ahead of their fundamentals.

But in this case, the fundamentals have gotten ahead of the stocks. The companies behind the S&P 500 are a net 6% bigger than they were relative to their share price back in late 2019.

You’d think a 6% bigger business translates into a 6% bigger stock. Over time, you’d be right. That’s how free markets work.

And for the S&P 500 to climb 6% in the remainder of this year would mean pushing back up to the verge of record territory. Bye-bye bear. Hello bull.

From there, if growth is anything like what the analysts have calculated, the market can keep moving up double digits a year. That’s “normal” in historical terms. It’s healthy. It’s a good return on the risk we accept when we buy stocks in the first place.

Of course all of this revolves around your sense of where the market mood was before the pandemic. Did things feel overheated to you? Were we spiraling into a recession anyway and the virus only distracted us from it by forcibly shifting the narrative?

Or did things feel normal? I recall things feeling normal. It was just another season on Wall Street before the virus erupted. And if you had a feeling that the world was about to end, I have to say it didn’t. The Fed stepped in. Crisis not averted, exactly, but managed. Mitigated.

And stocks went down. Then up. Then down. Now they’re going up again. American companies are making $1.38 for every $1 they made in 2019 . . . and this is apparently a sluggish year. That’s progress.