The Wall Street Journal has an interesting item today comparing the monster rally this year to the 1983 rally that heralded a monster bull market. Unfortunately, the WSJ notes, the differences are bigger than the similarities:
The market is not nearly as cheap now as it was then. When the 1980s bull market began, the S&P 500 was priced at less than 7 times trailing earnings. Even after a 69% rally, that multiple was just 10 times earnings.
The latest rally began with the market at a P/E of 13. The ratio has bloated to nearly 19, compared with its long-term average of 16.
In April 1983, when unemployment was last at 10.2%, it was on its way down. Now it looks like unemployment could rise for months.
And when the 1980s rally began, the Federal Reserve’s key policy interest rate was 11%, meaning it could simply slash rates to get things moving again. Today, the fed-funds target rate is nearly zero.
Chart via wsj.com