Unemployment Rate at 54 yr low-Recession soon or not?
A recession is not bullish for the overall market so studying how the civilian unemployment rate behaves before a recession hits should help tune out any and all noise from talking heads.
The red shaded areas in the above chart shows past recessions.
The red circles within this chart are times when the unemployment rate "flattened out" before either continuing downward or made an abrupt move upward.
The blue circles are "V shaped" type bottoms where there was just an abrupt jump in unemployment from one month to the next.
As you can see recessions always followed or were in the process once the abrupt move up in unemployment began.
The green dotted line shows the historical context of a 3.4% rate in unemployment.
As you can see on the far right, the current rate of unemployment has flattened out over the last 12 months, ranging between 3.4-3.7.
If you are bullish equities, you have to ask yourself...what is the macro thesis for this chart to continue downward as it did in the other cases where a recession was NOT followed by a flattening of the unemployment rate?
If you are bearish equities just know that this chart can remain within this range/stay flattened for another 9-25 more months before it abruptly moves upwards (like it did in the 1950's & 1960's). Perhaps the flattening out period even extends beyond a 3 year period.
Needless to say...I am on extra high alert for signs of an equity reversal based upon the above however I'm not going to fight the bullish market sentiment either. Always be nimble.
The red shaded areas in the above chart shows past recessions.
The red circles within this chart are times when the unemployment rate "flattened out" before either continuing downward or made an abrupt move upward.
The blue circles are "V shaped" type bottoms where there was just an abrupt jump in unemployment from one month to the next.
As you can see recessions always followed or were in the process once the abrupt move up in unemployment began.
The green dotted line shows the historical context of a 3.4% rate in unemployment.
As you can see on the far right, the current rate of unemployment has flattened out over the last 12 months, ranging between 3.4-3.7.
If you are bullish equities, you have to ask yourself...what is the macro thesis for this chart to continue downward as it did in the other cases where a recession was NOT followed by a flattening of the unemployment rate?
If you are bearish equities just know that this chart can remain within this range/stay flattened for another 9-25 more months before it abruptly moves upwards (like it did in the 1950's & 1960's). Perhaps the flattening out period even extends beyond a 3 year period.
Needless to say...I am on extra high alert for signs of an equity reversal based upon the above however I'm not going to fight the bullish market sentiment either. Always be nimble.
Comment:
It should also be noted that Job Openings per the below JOLT's charts are in a downtrend...again, what is the thesis for why this chart would reverse course and companies would begin a hiring spree?
Comment:
I've circled in blue what the DJI did from Feb 1966-Nov 1969, the period where the unemployment rate flattened out before the upward surges in unemployment during the 1970's. (NOTE: This is a 3M chart)
Could we be in for a period of stagnation in equities like the 21 yr period from July 1961-July 1982 where we eventually meet back up with the LT trend line in red?
Comment:
This chart shows how once you get an that initial spike in unemployment from the lower end of the range, it then manifests itself in "waves" (COVID was obviously an exception to the norm). I wanted to then mark where the US market bottomed within the waves up in unemployment. This shows how the market is forward looking with the market bottoming before the worst hits in unemployment.
Comment:
I created this chart because I wanted to view the various US unemployment rates within the context of the US stock market. I picked DJI because of the lookback history vs. SPX. I have also included important uptrend lines (light blue) and various "round numbers" for S&G's (yellow horizontal lines). Enjoy...
Comment:
For those thinking we will see a spike in the unemployment rate in 2024...think again. It is not typical to see such spikes during a presidential election year. As you can see in the above chart...such spikes only occurred 2/19 times or 10% AND the incumbent party lost the election.