Jobs & Earnings Push Markets Higher

Last week the government reported we added 943,000 jobs, certainly a very good number.  The unemployment rate registered 5.4%, moving quickly in the correct direction.

2nd Quarter Corporate profit reports are at the tail end with 86% of companies reporting.  90%, yes 90% (!!), beat earnings expectations – certainly another very good number.

The forward PE (Price-to-Earnings) ratio sits at 22.8, not overly high historically.  As profits have exploded, this ratio has decreased suggesting corporate profits are justifying the current level of most stock prices.

So, is the stock market overvalued?  It depends on the criteria used and at this point, frankly, it’s very subjective.

Last week most stocks increased, with the Dow rising .79%, the S&P500 .96%, small caps .98%.  The Nasdaq led the way in the US rising 1.14%.

Over the pond witnessed the same results with foreign stocks rising 1.05% and emerging markets up 1.18%.

Strong reports pushed our 10 Year US Treasury up to end the week with a yield of 1.29%.

Economic news, this week will focus on inflation numbers as we’ll hear reports for the Consumer Price Index and the Producer Price Index.

Infrastructure Bill

It appears the Senate will approve the 1 Trillion Dollar Infrastructure Bill this week, and then off to the House.  Assuming all goes well for those in favor, we’ll then witness the fight over Infrastructure Part 2 that apparently contains a 3.5 Trillion Dollar price tag. With our National Debt now at 26.8 trillion, what’s another 4.5 trillion??

I’m confident in one thing:  I’m sure some of the 1 trillion and 3.5 trillion will be beneficial, and some is simply “pork.”

I really hope Jerome Powell or his replacement next February, know exactly what they’re doing, by keeping the significant amount of monetary stimulus at full throttle.  The Bank of England last week indicated necessary conditions for tightening have already been met.

I wonder what actually is/are the specific conditions here in the US for monetary policy to start to normalize!

Rates Around the Globe

I like to keep my thumb on interest rates globally.  We like the fact that low rates have helped move risk assets higher, however we dislike the rate we are receiving on our “bank” money.

Looking around the globe, the picture has not changed much since the last mention here.

The United Kingdom 10-Year rate is yielding .57%, the German 10-Year rate (.47%), the Italian 10-Year rate .54%, the French 10-year rate (.14%) and the Japanese 10-Year a whopping .02%.

As I’m typing, our 10-Year rate has a yield of 1.28%.

Many of the shorter rates in the above-named countries are negative yielding.

So, when will rates normalize?  What will the impact be on both the bond and stock markets?

Will it actually happen? As always, time will tell!!

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Paul Levin CFP®, ChFC®, RICP®

Retirement Income Certified Professional®