Stocks rose sharply on Friday after a goldilocks jobs report (not too hot, not too cold) encouraged both those looking for a rebound and those looking for a delay in the Federal Reserve’s rise in interest rates. This came after Janet Yellen said mid-week that stock valuations were “quite high” but not as extreme as bond prices. I like to measure stock valuations in terms of the earning’s yield. According to multpl.com the S&P 500 has an earnings yield of 4.83%. Granted this is below the long term mean of 7.44% but nowhere near the 2% level seen in 2000. Given how low interest rates are I do not believe stocks are valued too high. Over the weekend China lowered its key lending rate .25%, the third decrease in the last six months.
In particular this week:
- The Commerce Department reported the US trade deficit grew 43.1% in March, the largest monthly increase in two decades and much larger than forecast. February’s trade deficit was revised slightly upwards. The sharp increase was fueled by the resolution of the West Coast Ports slowdown in late February. The three month moving average of the deficit was only slightly wider than a year ago. US exports rose slightly in March but are lower than a year ago. Most of the increase in exports was due to airplanes, semiconductors and food while consumer goods fell.
- The Institute for Supply Management’s non-Manufacturing purchasing manager’s index, a measure of the services sector, rose to a strong 57.8 in April up from 56.5 in March and better than forecasts.
- The Labor Department reported
- Worker productivity fell 1.9% in the first quarter after falling at a 2.1% pace in the fourth quarter. From a year ago productivity was reported .06% higher.
- First time claims for unemployment in the prior week rose slightly to 265,000. The four week moving average of claims fell to 279,500 the lowest since May 2000.
- 223,000 jobs were created in April and the unemployment rate fell to 5.4%. March’s jobs number was revised down from 126,000 to just 85,000 and February was revised up from 264,000 to 266,000 jobs. More Americans entered the labor force and wages were 2.2% higher than a year ago.