Tom Explains that Unemployment is a Lagging Indicator
Transcript:
Katie Nealis: So last year COVID created a high unemployment rate and the market kept going up. I personally find that very confusing. So the next question we have is how does unemployment affect the stock market?
Tom Vaughan: Yeah, that’s a great question. I got that quite a bit last year, you know, especially towards the second half of the year, unemployment was quite high, the pain was high food lines were long, you know, all these things are happening in the stock market is going up and up and up. And metric that a few places, it really went up, you know, incredibly. And so a couple of things. First of all, the market is not looking at today, for the most part, especially with employment, it’s looking more to the future. And so with all last year, for example, with all the money that came out and stimulus, the future looked brighter, that turned out the market was right, earnings have been fantastic.
2021 – it’s gonna be a good year for earnings, much better than probably 2019, which was a record year, at least on the S&P 500. And so again, the market is looking forward. And unemployment is a lagging indicator, it happens after. So, you know, the market is looking forward, it starts to fall because it’s these a recession coming. And then the recession actually happens, and then people start to get laid off. And that’s way after the market had already come down or that way after but generally way after, and so and then the market might start back up. Well, there’s still layoffs going on. So there’s a disconnect, mainly because of timing market is SAS a six to 18 months in advance and layoffs are actually coming out at a later point, you know, as a result of of a recession. So, yeah, that’s a good question. That’s it comes up all the time.