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camistocks (< 20)

The S&P 500 vs the unemployment rate simce 1950 (Charts)

Recs

16

December 07, 2008 – Comments (6)

This is a follow up to my previous post. Anchak suggested a chart overlay of the S&P 500 vs. the unemployment rate. Great idea! So here it is. First the entire period from 1950 to 2008, and then 10 year periods for more details. And all of this vs. recessions! This is really geeky... 

The blue chart is the S&P 500, the red line is the unemployment rate (right scale) and the green line is the percentage change of the unemployment rate vs. a year ago (left scale). The rose colored fields are recessions.

1950-2008:

1950-1960:

1960-1970:

1970-1980:

1980-1990:

1990-2000:

2000-2008

 

So it seems that every time the S&P 500 (=stock market) rose 3-6 months before the end of a recession, the exception was 2002-2003. IMO the very high valuation of the stock markets in 2000 and the 911 attacks led to a prolonged fall of the stock market back then.

Conclusion? The stock market usually bottoms out 3 to 6 months before a recession ends. Also, the unemployment rate percentage change shows the beginning and end of a recession.

So let's see, when the trends change.

6 Comments – Post Your Own

#1) On December 07, 2008 at 3:09 AM, camistocks (< 20) wrote:

If you don't see a graph, it is because the hourly data transfer limit has been reached. Just try later.

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#2) On December 07, 2008 at 3:46 AM, reepicheepo (61.41) wrote:

Thanks for the graphs. I've been hearing people talk about these trends (unemployment peaking after the market bottom), but it's nice to see the actual data.

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#3) On December 07, 2008 at 12:24 PM, anchak (99.84) wrote:

Looks like CapsGods ate my first post. Here goes again!

Thanks a LOT!~ Of course its geeky ....:) :)

Inferences:

(1) Markets have always bottomed ( A - bottom) before the end of a recession. The 2 exceptions were 2002 and 1960-61 , where THE BOTTOM came after recession. However, 2002 was the ONLY time where market bottom was MUCH lower than the bottom reached during the recession.

(2) The first derivative of the Employment rate has not failed to call the end of the recession - however as markets have been leading indicators - you cant necessarily use this for calling direction of the market.

(3) Industrial Production: I think one needs to use both. Its not exactly as reliable as Unemployment ..but the slope change ( ie % rate of change) has also been pretty effective....I think it has a fwe months headstart than the other one 

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#4) On December 07, 2008 at 12:33 PM, anchak (99.84) wrote:

Of course...one problem is Industrial production actually has been going up per the site since Sep. However, historically, markets have had always bottomed significantly PRIOR to this event.

It would be interesting to watch, nevertheless.

Outstanding resource by the way!

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#5) On December 07, 2008 at 12:55 PM, matttheboatman (< 20) wrote:

Great information. However, while studying the movement inside each decade, I noticed one very clear change in a macro trend. In every decade other than this one, the S&P starts on the lower left side of the graph and ends at the upper right. That is a good thing. Looks like 2000 - 2010 is reversing this trend as the S&P is starts in the upper left and will end in the lower right. That is NOT a good thing. Be careful, looks like we are breaking new ground here.

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#6) On December 07, 2008 at 3:46 PM, camistocks (< 20) wrote:


Thanks all for you comments!

 

anchak - 

 

on 1) the market crashed in 1962 because of the Cuban Crisis, when WW3 almost started. 

 

2) you are right, I'm only using this for "calling" a recession, instead of waiting for the NBER to call it officially.

 

3) I ran the charts with the Industrial Production data and yeah it also calls the end of recession. Thanks for pointing this out. It's strange that it is currently rising, must be temporary.

 

 

matt - good observation. However we must wait to 2012. Every other graph I posted lasts 12 years, only the current decade is only 8 years. Give it some time... maybe by 2012 the market is at new all time highs...?

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