So Goes The Job Report So Goes The Stock Market

Mark J. Perry, Carpe Diem, March 7, 2013

The chart above is an update of one featured several months ago on CD, and shows the close historical relationship between: a) the US stock market measured by the S&P 500 index and b) the US labor market measured by weekly jobless claims (seasonally adjusted, four-week average, inverted). Over the last five years, the correlation between those two variables has been amazingly high at -0.941, confirming Dennis Gartman’s observation that “As go jobless claims, so shall go the market.” Or alternatively, “As goes the market, so shall go jobless claims.”

Jobless claims (seasonally adjusted, four-week moving average) fell last week to 348,750, which is the lowest level in five years, going back to March 2007. Seasonally adjusted initial jobless claims fell to 340,000, the lowest level since February 2008. The S&P500 index closed at 1,518.20 last week, the highest level since November 2007. Back in March of 2009, jobless claims peaked at recessionary-high of 659,250 during the same month that the S&P500 Index fell to a recessionary-low of 695.19. Since then, jobless claims have fallen to about half of their 2009 peak, while the stock market has roughly doubled over that period. It’s pretty clear from those peaks and lows for claims and the S&P 500 index that the US stock market and US labor market are very highly correlated and inter-connected.

Bottom Line: Given the close relationship between the stock market and labor market over the last five years, we can expect ongoing improvements in the labor market if the bull market rally in stocks continue.