Onajourney

Using the Unemployment Rate as a Contraindicator

FRED:UNRATE   Civilian Unemployment Rate
This is my first time using TradingView, or posting here so please forgive any flaws or failings in my format. This chart highlights the U.S. Unemployment rate (bottom section) compared to the S&P 500             (top section). The Unemployment Rate also has a 12-month moving average overlaying it. I’m posting this idea as much to be an inquiry as anything. But, it appears to me that at least with respect to recent bull and bear markets looking at the unemployment rate and it’s 12-month moving average crossover has been helpful in deciding whether to significantly increase or decrease equities as a percentage of asset allocation. Various studies indicate that asset allocation is the number one indicator of long-term performance. Are you mostly in, or mostly out of the right asset classes at the right time?

With the unemployment rate peaking near the beginning of this bull market and having declined throughout, I am convinced that it bares close watching now that it is approaching the 4% level. A lot of other bull markets have ended just as unemployment rates bottomed. If we can identify the inflection point, or even estimate it within two or three calendar quarters it could significantly impact our long term performance by helping us reduce equity exposure either before the next bear market, near the peak, or within a reasonable time after it has begun and before the damage is too severe. I can see the crossover is not precise for fine tuning timing, but does give some rough context and insights into when risks are lessening or building. I welcome any other thoughts, ideas, feedback, or suggestions that may help expand the discussion and insights related to unemployment as a market indicator and look forward to hearing them…
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