The last month has been marked with worries that the stock market is about to (finally) have a correction and drop some 10% or more. While it is impossible to tell if, or when, this might happen; a few numbers may explain some of the recent action. Stocks were seized with a bit of mania for growth and the internet which over-shadowed other parts of the market. The Dow Jones Internet Index peaked at the beginning of March after climbing almost 70% from the start of 2013. Then it turned down and slid 16.4% to April 11th; as of this afternoon it has regained about three percentage points. One factor in the down move may have been valuation: the PE is over 70 and has risen substantially more than the index level.
The rest of the market hasn’t shown these kinds of large shifts. The S&P 500 is up about 30% since the beginning of 2013. While the PE is at 17, earnings have more than kept pace with stock prices and the PE is up about 21%. Growth stocks slightly out-performed value stocks in the S&P 500 over the last two years. However, since the beginning of March when the Dow Jones Internet index peaked, growth lagged value by a four and a half percentage point spread. The worry of the last six weeks was the passing, at least for now, of that internet infatuation.