Have You Lost Your Job?

More economic numbers came out this morning.  The big one was the fact that there were 80,000 jobs lost last month.  The estimate was for 50,000.  The unemployment rate ticket up from 4.8% to 5.1%.  The Dow futures were up 100 before the number and are now even.

This got me thinking how much of these numbers are actually correlated to the stock market performance.  Many are not at all.  They are just headlines.  But, the unemployment rate is very correlated to how the S&P 500 performs.  I’d say it’s a coincident indicator.  In other words, it doesn’t help you for the future but rather it moves in step with the market.  But, you can see a trend.  The picture I’ve created is the S&P 500 in orange and the unemployment rate (inverted) in yellow to show the correlation since 2002.  You can see as the unemployment rate bottomed (since it’s inverted it topped) that the S&P 500 has peaked as well. 

S&P 500 vs. Unemployment Rate Inverted

So, to make money, you have to address where unemployment is going, not where it’s been.  If you are bullish on the economy and everything the Fed is doing, then you have to be bullish on stocks.  I believe these things don’t change course over night.  So, I believe we’ll see a few more months of these bad economic numbers but perhaps stabilizing meaning probably the market moves sideways as the numbers come in.

Keep in mind this is just one tiny indicator.  There are numerous and none of them always work.  I watch probably 100 different indicators every day.  The easy money is when most of them tell the same story.  Right now, there are conflicting indicators.  The one I put most faith in is the supply/demand of stocks.  That’s because we never know how people will react to various economic indicators.  At the end of the day, the market may be way up because everybody rationalizes and says well at least we didn’t lose 100,000 jobs last month.  That will show up in the demand for stocks.  I want high volume intense buying to change my opinion on the markets.

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2 Responses to “Have You Lost Your Job?”


  1. 1 Lev April 4, 2008 at 10:28 pm

    It looks to me from the graph that the unemployment rate is a lagging indicator at the bottom and a leading indicator at the top, at least for that particular cycle.

  2. 2 keggerss April 5, 2008 at 9:31 am

    You’re correct. The stock market is pretty good at anticipating upturns in the economy and I’m looking for the same thing this go around. When everyone knows the economy is improving, stocks may already be up 15%. But, investors are sometimes stubborn to admit the economy really is turning down. Therefore, I turns into a leading indicator. Very good perception on your part. This is why we have to monitor investors more than the data coming out. Because, when investors begin to really buy stocks and there’s real demand based on several market internals, that’s when it’ll be time to buy, good economic data or not.


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KARL’S TWITTER (www.twitter.com/karleggerss)

  • Steady decline in the ADV/DEC all day on the #NYSE. 2 hours ago
  • Earlier this month, the odds of a December Fed hike were at 20%. Today, 63.8%. 1 day ago
  • Rate hike odds for rest of year according to Fed Funds futures: 11/1/2017: 2.8% 12/13/2017: 63.8% 1 day ago
  • Big beat by Philly Fed manufacturing index. 1 day ago
  • Initial jobless claims: 259k vs. 300k est. 1 day ago
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