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The stock market ended last week on a sour note, down over 2.5% on Friday. The downward action of the major indices was disappointing especially after (1) Intel reported one of its best quarters in the last decade earlier in the week, (2) Goldman Sachs reached a much better than expected settlement with the SEC and (3) the oil well gushing into the Gulf of Mexico was finally capped by British Petroleum.

The biggest reason why the major indices are selling off on the heels of a stellar seven day rally is that the bulls are giving up and are throwing in the towel. Intel’s much better than expected news did not sustain the recent upward momentum of the indices. The theory is that if the impressive results of Intel, one of the biggest companies and most savvy on the planet can not rally the market what can?

Meanwhile, the bears are and will remain in full control because the revenue results of Dow components, General Electric (NYSE:GE), J.P. Morgan (NYSE:JPM) and Bank of America (NYSE:BAC) were underwhelming. General Electric beat its EPS estimates of $.27 by reporting $.30 per share. However, GE’s revenue not only fell short of estimates but was down by 4% as compared to its previous year ago quarter.

Its notable that Dow GE recorded its seventh consecutive quarter of revenue which was lower than previous year quarter comparisons. It easily beat its previous four consecutive quarter downturn which occurred between 2005 and 2006. GE’s revenue for its most recent quarter fell to its lowest second quarter dating back to 2004.

When put into perspective GE’s earnings per share (EPS) paints a rather bleak picture. The company earned $.48 per shares in its first six months of 2010. This is actually less than the $.50 that GE earned for the same year ago period. It will probably be difficult for GE to eclipse its EPS of $1.01 which it reported for calendar 2009. The bleak picture is that Calendar 2009 had been GE’s worst reporting of EPS over its last 10 years. There is no question that one of the world’s best managed companies remains in a deep rut and my belief is that it is GE rut which will take the major market indices to below double digit Price to Earnings (PE) multiples.

Many of the stock market’s bulls either have forgotten or were not around to experience the contraction of price to earnings (PE) and price to sales (PS) multiples which occurred during the previous super or secular bear market which began in 1966 and ended in 1982. Stocks declined to and stayed at single digit PE multiples. Why? Take GE’s $1.01 that it earned last year and the probability that it will earn approximately the same or slightly less in 2010 based on its steadily declining revenue base. Its notable that Dow component GE recorded its seventh consecutive quarter of year over year declining revenue comparisons and its most recent quarter fell to its lowest second quarter dating back to 2004.

Based on its current share price of $15, its inability to grow its business and it current $.40 per share annual dividend rate it will take almost 40 years for GE’s shareholders to earn a 100% return on their money via dividend payments. That of course assumes that the company which has $664 Billion in total debt can remain in business by stabilizing its revenue and earnings in a rather depressing deflationary global economic environment. Should GE’s share price fall to $8 it would still take 20 years for its shareholders to make a return of 100% on their invested capital.

What most investors don’t understand is that double digit PE multiples only work in super bull markets which are driven by steady economic expansion. Without steady economic expansion there can not be any consistent revenue growth for a majority of those private and public companies which participate in an economy. Therefore, the only mathematical outcome in a no growth environment is a contraction to single digit PE multiples for a majority of all companies and the indices they reside which include the S&P 500 and the Dow 30 Industrials.

The ability to participate in earnings and dividend “growth” is the only logical reason for long term investors to hold the shares of even well known companies. As soon as the visibility for future growth for an economy or an established company becomes murky price multiples such as the PE and PS multiples have no choice but to contract or go down. In a little or no growth economic environment the ideal investment would be a 30 year U.S. Treasury bond. At its current yield of 4% the Treasury bond would return 100% cash on investment over 18 years. Additionally, a Treasury bond investor would be guaranteed a 100% return of principal. On the other hand share prices can go down and dividends are not guaranteed. Just ask anyone who holds the shares of General Electric, Bank of America (NYSE:BAC) and J.P. Morgan (NYSE:JPM). The three Dow stalwarts recently slashed their quarterly dividend payments to levels at which they had not previously been at for one, four and five decades respectively. The share prices for all three are off by more than 40% from their all time highs.

In an uncertain economic environment why would any sane investor want to own shares of GE when he or she can get a 100% return on their investment in bonds backed by the full faith and credit of the U.S. Government? This is especially since the bonds will return 100% of their monies almost twice as fast as investing into GE’s shares and relying on the shares dividend payments. The answer is that in the uncertain economic environment only a fool would make a long term investment into GE shares at their recent price of $15.00. With that answer it is only logical that GE shares must go to a price point at which they can compete against the Treasury bond. Since there is risk in the dividend being paid for the next 18 years and risk that its share price could decline I believe that GE’s shares will likely go to a price at which its dividend would pay a shareholder a 100% return on investment in 10 years. That price would be $4.00 per share.