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Markets Rise on Strong Jobs Growth; PE Ratios Same over Past 10 Months Thumbnail

Markets Rise on Strong Jobs Growth; PE Ratios Same over Past 10 Months

Last week, the Dow (+0.2%), NASDAQ (+2.6%), and S&P 500 (+1.2%) all exhibited gains, thanks in great part to a strong rally on Thursday to end the holiday-shortened week.  This extends the YTD gains to 8.9% for the Dow, 7.4% for the S&P 500, and 4.8% for the NASDAQ, but also ended the 7-week streak of the Dow outperforming the NASDAQ.  Meanwhile, both taxable and tax-free muni bonds gained about 0.2% for the week, but taxable bonds are still down about 3% - 4% for the year.


Last Thursday, the March job numbers were reported and were very strong, as over 900,000 jobs were gained, and the unemployment rate dropped from 6.2 to 6.0%.  Further, according to Bloomberg, US small businesses reported a record rise in job openings and wage increases for March.  So, we are beginning to see the results of widespread vaccines and the economy showing signs of re-opening, maybe even more than in 2020.  Most economists believe that 2021 will show strong growth as Americans begin to emerge from “hibernation” and spend money, as consumer spending represents almost 70% of the US economy.  Let’s go spend those stimulus checks and all that money we saved last year!


I just saw this chart shown below, which should address the concern that the stock market has gotten ahead of itself over the past 10 months.  The chart demonstrates that since June 2, 2020, price to earnings (PE) ratios have remained about the same, as the roughly 30% rise in stock market prices have been matched by the same rise in corporate earnings (EPS).  In short, the stock market is no more or less expensive than it was 10 months ago.

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