Chart Of The Day: U.S. Stock Market Vs. U.S. Labor Market

by: Mark J. Perry

The chart above is an update of one I’ve featured before on CD, and shows the close historical relationship between: a) the U.S. stock market measured by the S&P 500 index and b) the U.S. labor market measured by weekly jobless claims (seasonally adjusted, four-week average, inverted). Over the last six and-a-half years, the correlation between those two variables has been amazingly high at -0.924, confirming Dennis Gartman’s observation that “As go jobless claims, so shall go the market.” Or alternatively, “As goes the stock market, so shall go jobless claims.”

Jobless claims (seasonally adjusted, four-week moving average) fell last week to 335,500, which is the lowest level in almost six years, going back to November 2007. The S&P500 index closed at an all-time record high of 1,709.16 last week. Back in March of 2009, jobless claims peaked at a 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 more than doubled over that period (up by 146%). It’s pretty clear from those cyclical peaks and lows for jobless claims and the S&P 500 index that the U.S. stock market and U.S. labor market are very highly correlated and inter-related.

Bottom Line: Given the close relationship between the stock market and labor market over the last seven years, we can expect ongoing improvements in the labor market (further reductions in jobless claims and the jobless rate) if the bull market rally in stocks continues.