Charting the S&P 500 with Unemployment

bee

From today's "Chart In Focus":

"Bullish is not the same as good"

...instances of high unemployment rates tend to be followed by several months of rising stock prices. This does not make sense in conventional economic terms. After all, higher unemployment means weaker GDP, and lower company earnings, the latter being what is supposedly the most important factor for stock prices.

But high unemployment also tends to bring a much more accommodative Federal reserve. When the Covid Crash unfolded, the Fed dropped its Fed Funds target rate down all the way to 0-0.25%. The Fed also ramped up QE4 at the fastest rate of QE that it has ever engaged in. This has been tremendously stimulative to the stock market’s rebound, and the Fed is not likely to back away from this stimulus until it is clear to the decision makers that the economy and unemployment have turned a corner. In the meantime, those stimulative efforts will continue to help boost stock prices higher.

Chart In Focus

Mark

Judging by those steep advancements to the rear in the unemployment rate maybe the S&P drop just hasn't caught up yet. Once realized, then the damage can be accurately assessed and repairs made. Just MHO.

Sven

Pretty wild days for sure. I keep remind myself the stock market is not an accurate reflection of the economy especially the high level of unemployment - 14.7% and increasing. Sad sight of seeing long line of people getting grocery from food banks. When this situation stabilizes, where will the economy be? Several countries are way ahead of US in their recovery.