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Why the Stock Market Keeps Going Up While Employment Nosedives
It turns out only one of these is a leading indicator of the economy
U.S. unemployment reached 14.7% in April 2020, the highest level recorded since the Great Depression. With such staggering unemployment numbers, it might be confusing to see that every major market index is about 30% above its March 23 lows:
However, this result is actually pretty common if you look at the market history. In fact, U.S. stocks tend to perform better following record highs in unemployment than they do following record lows in unemployment. And there’s a logical explanation for this market reaction.
Since 1948 (the year BLS official data begins) there have been eight instances where unemployment peaked above 7% and eight instances where it bottomed below 5% (excluding our current crisis). I have highlighted these peaks (in red) and bottoms (in blue) in the chart below:
