The US stock markets were up last week, as the Dow (+3.9%), NASDAQ (+2.5%) and S&P 500 (+2.5%) extended their recent gains, as all three indices are up about 10% or more over the past 5 weeks. Small caps had an extraordinary week, as they gained about 6% last week. The tech-heavy NASDAQ continues to set record highs, and the S&P 500 is now only 1% off its all time high. Meanwhile, the Dow continues to lag the other indices, as it remains about 6% off its pre-COVID peak and is still down 2.5% YTD. The markets have been propelled by corporate earnings being not as bad as predicted. According to Factnet, the consensus of economists projected quarterly earnings to drop 44% over this time last year, but earnings have dropped “only” 34% thus far.
Diversified bond funds also gained about 0.25% last week and tax-free municipal bonds rallied about 0.5%. In other words, we had a pretty strong week across the board. While I am delighted to see BOTH the stock and bond markets rallying from their abyss from less than five months ago, I do have my concerns about the valuations of the stock market. While I am certainly smiling to see these numbers, I do have one eye looking over my shoulder.