Labour market data a quintessential key to trajectory of recovery

The strong Wall Street rally between March and May reflected relief among investors that the official policy response to the crisis had prevented a repeat of the Great Depression.

This relief was mostly built on economic data that was ‘less bad’ than feared, rather than clear signs of economic recovery. As a result, by early June valuations had begun to look less attractive and the market stalled in the absence of more positive economic news. The S&P 500, for example, is now standing on a Shiller P/E ratio (using 10-year average earnings data) of 16.1x, which compares with the average from 1881 onwards of 16.3x. For valuations to become more attractive while allowing markets to move higher from current levels, we need to see the appearance of a rapid recovery in c...