Friday, February 10, 2017

This Week's Message: What Jobless Claims Say About Stocks

I've heard Neil Dutta (Renaissance Macro's head of economic research) say numerous times that if businesses are hiring he doesn't need much more to tell him that the economy's in good shape.

As you may know, January's jobs number surprised to the upside. As you may or may not know, weekly jobless claims are on a below-300k streak not seen since the 1970s. And, by the way, that does not adjust for population growth: I.e., the U.S.'s population has grown by nearly 60% since 1970,      (click any chart to enlarge)

and its job market has been more than able to absorb the growth.

Weekly jobless claims 1970 to present...

In fact, on a percentage basis, we're talking weekly claims running under .09% of today's population, versus .15% during the best of the mid-70s:

So what's that mean for the stock market? Well, take a look at the nearly perfect negative correlation between jobless claims and the S&P 500 during the past 10 years:

For a more impacting view, here's the same chart with jobless claims inverted:

We're always on the hunt for relationships that support or reject our current view of markets, as well as our sector allocations. At the moment, jobless claims support the trend, as well as our positioning.

Have a great weekend!

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