Today’s US unemployment report reinforced a positive economic and market backdrop.  One question we frequently get is: “Is the market up too far too fast?”

For this we need a little perspective on the S&P 500 (SPX) 15% year-to-date gain and 23% rise from the Christmas Eve low. It is important to remember Q4/18 was down the better part of 20% and was the worst Q4 since the Great Depression. Even the most bearish would agree the economy is far from Depression-era levels, so the reflex rally is likely a response to a wild market event last year. The SPX remains basically unchanged from early 2018 while SPX operating EPS are up over 20%, which has led to a multiple compression despite the low inflation environment (Figure 1). In other words, the recent rally is likely making up for inappropriate weakness at the end of last year.

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