This page has been archived and commenting is disabled.
What Happened 12 Of The last 13 Times Jobs And Stocks Were Here?
Unemployment Hits 6-Year Low; Bad News For Stocks?
OK, before we get a barrage of hate mail, no, we do not think the drop in the unemployment rate is bad news. And no, we are not among the cadre of folks who — whether due to perma-bear status or simply a grumpy disposition — are always looking for the dark cloud in everything. We are simply intrigued by the quantitative aspects of the financial markets. And today’s Chart Of The Day reveals an intriguing piece of quantitative data:
Since 1969, when the U.S. U3 unemployment rate has hit a 6-year low while the stock market (as measured by the broad, equally-weighted Value Line Geometric Composite) is at a 12-month high, the market has been lower 1 year later 12 out of 13 times by a median -14.8%.
Again, do we think the drop in the unemployment rate is a bad thing? No. Do we think 6-year lows in the past have caused stock market corrections? No. Truth be told, it is probably just “one of those things”. However, there are likely a few messages worth considering here.
First, the historical market weakness following coincident 6-year lows in the unemployment rate and 12-month highs in the equity market probably speaks to the location in their respective cycles. That is, rather than the notion that the U3 being at a low or the Value Line being at a high is a negative, the combination has historically occurred toward the end of an economic expansion and bull market cycle. Despite the weak nature of the post-2009 recovery, 6 years into an economic expansion is a pretty long way, historically speaking. And while the condition of the stock market being at a 12-month high is not by itself a negative, occurring 6 years into an expansion suggests some vulnerability to corrective action.
Second, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news. This chart is indicative of that. Flash back to the periods marked on the chart (e.g., 1969, 1987, 1989, 1998, 2007) and you will find mostly positive sentiment among consumers and investors. We are not foolish enough to make predictions about a top here in the equity market. Even if this were a genuine concern, rallies have at times persisted for several more months in the past before peaking. However, the sentiment situation, at least in the market, is certainly consistent with those prior periods of either complacency or downright euphoria.
This again is probably just one of those interesting market data quirks. The phrase “correlation does not imply causation” certainly applies here. However, we would not totally dismiss the potential message regarding the current proximity of the market cycle. And while the good news of low unemployment and high equity prices has brought understandable good cheer, that is always the case at the peak.
»
- 14852 reads
- Printer-friendly version
- Send to friend
- advertisements -
Timberrrrrrrr.....
Maybe so but what happens when you chart the real unemployment rate of 23%, not the fabricated Bureau of Lies and Statistics numbers?
Yup. Somehow we can know combine bullshit government statistics with hyper manipilated markets to come to the logical conclusion that.........??? WTF. Bullshit in. Bullshit out.
"It's Different This Time"
"12 of the last 13 times"
So you're telling me there's a chance?
It's diffwn't this time.
But on all prior 13 occasions there wasn't global QE, ZIRP & NIRP.
Garbage in Garbage out, this article is ass. Unemployment numbers? Nobody believes those.
Market...LOL. I guess I am "grumpy" as all I see is manipulation and no true price discovery.
Keep telling you that you can only go back until the end of 2011 when the central banks began using software to regulate the markets.
Causality, I drank too much wine therefore I must take a piss.
Even in the Matrix.
Which other time did they print $5 Trillion extra Dollars with an extra Trillion Euros, a Trillion yuan and quadrillion yen.
We HAVE DISCOVERED THE FED FOUNTAIN OF YOUTH AND THE PERPETUAL MOTION MACHINE ALL IN ONE!!! Up FOREVER!
Sadly this is what it is starting to seem like. Nobody knows when the ponzi scheme/printing extravaganza will come crashing down and how. When **all** central banks are printing like mad will it ever come crashing down? I believe so but I've been proven wrong for the past four years...
You assuming that 33 Liberty St. is going on vacation?
"Second, bull markets do not end amidst bad news. Rather, they end when stocks fail to advance on good news."
Since the "news" media announce that EVERYTHING is good news for the Dear Leader Obama economy how will this work?
Come on, Im into chart porn as much as the next guy, but what exactly is the causal linkage between unemployment (labor) and stock prices (capital)? Even if you accept the doctored unemployment data to begin with? This smacks of really selective data mining to prove a preconceived notion.
The uptrend is at about 1900. They should at least hit that. To go lower requires either a banking crisis, or the Fed/Treasury/Bankers deciding to let the free market take hold. They can print money all day and keep pushing this nonsense higher if they want, as long as the ponzi holds together.