Top analyst David Rosenberg has been very bearish on the U.S. economy, and he hasn’t changed that stance. But he is seeing a ray of hope for stocks.

“My fundamental view on the U.S. stock market hasn’t changed either — we are still in a bear market, marked by tremendous volatility,” Rosenberg writes for Canada’s Globe and Mail. “You can’t overlook the fact that the 18-per-cent rebound that has occurred since October came on the back of a 19-per-cent collapse from July. [But] what has changed are valuations and investor expectations.”

Rosenberg says that trailing 12-month and forward-looking price/earnings ratios of the S&P 500 are both at attractive levels. In fact, “In the past quarter-century, we saw only one other time when [the P/E] was this low on a one-year forward basis, and that was the first quarter of 1988,” he says. “A year later, the S&P 500 rallied 15 per cent.”

Rosenberg says the market P/E shouldn’t be used as a timing device. But, he adds, “At their current low levels, the market’s relatively modest P/E ratios bolster confidence that this market is unlikely to take a devastating plunge. One could even argue that equities at current levels, with current earnings expectations, are good value. … While I’m still on the cautious side, I see the case for why the floor for investors’ expectations may be higher than it was before. The key going forward will be how corporate profits perform in the low- to no-growth environment I see ahead.”