Stock market is not the Economy : Unemployment numbers

Few things to note from the table

• During the 2008 financial crisis, unemployment rate went from 4.9% to 5.6% during Jan-June, 2008. S&P500 was at 1278 on June 27, 2009, down 14% from ~1500 peak
• Unemployment rate increased more rapidly during the later half of 2008 to end at 7.2% in December. H2, 2008 saw the fall of Lehman. S&P500 was at 887 on Dec 19, 2008 down 30% from June, 2008 and down 40% from ~1500 peak.
• Unemployment bottomed at 10% in October 2009
• Stock market bottomed at 683 in March, 2009 when the unemployment was at 8.7%

Stock market reflects the rate of change of bad news. 

• Rate of change of unemployment in H1, 2008 = -.15% per month
• Rate of change of unemployment in H2, 2008 = -.23% per month
• Rate of change of unemployment in H1, 2009 = -.28% per month
• Rate of change of unemployment in H2, 2009 = -.06% per month

The rate of change of unemployment numbers clearly show that the rate was highest in H1, 2009 which co-incides with the market bottom. The absolute unemployment percentage kept getting worst in H2, 2009, but the rate of change of bad news kept decreasing. So the market had already started increasing when the economy still kept shedding jobs. The economy hit bottom in terms of unemployment in October 2009 when the S&P500 was around ~1100 which was about 57% above the lows in March 2009 and still 33% below the ~1500 market top.

The stock market is a forward looking vehicle. During a recession, in order to look for the bottom, look for the point where the market starts ignoring the bad news.


Reference

• https://www.ncsl.org/research/labor-and-employment/national-employment-monthly-update.aspx