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Nick Godt's Market Medics
July 1, 2010, 12:01 a.m. EDT · Recommend · Post:
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By Nick Godt, MarketWatch
NEW YORK (MarketWatch) -- Here's a possible way to reconcile Americans with the stock market: Over the past 10 years, U.S. stocks have increasingly closely tracked the Labor Department's report on weekly jobless claims, rising when claims fall and falling when claims rise.
Over at Wells Capital Management, chief investment strategist Jim Paulsen cranked up the firm's database, and the resulting chart does show a striking inverse correlation between jobless claims and stocks.
While not surprising in and of itself, the correlation, in fact, hasn't been this clear since the 1960s, according to Paulsen.
Jobs and stocks moved in a much less synchronized fashion from the 1970s through the end of the 1990s.
One reason for this, Paulsen suggests, is that starting in the 1970s, the market's mindset changed with stagflation, when a sluggish economy combined with inflation -- largely due to the oil shock -- created a mixed picture for stocks.
Back then, more employment would signal more inflation and more pressure from interest rates on stocks, Paulsen says.
But over the past 10 years, as it did in the 1960s, jobs have meant improvement. Since 2009, they've also meant for stocks that "we're farther from depression."
Either way, the stock market -- the center of capital formation which allows companies to raise money, expand and hire -- has itself increasingly relied on evidence of job growth to sustain its advance over the past 10 years.
Looking at the last recovery from the tech-bubble crash, we see jobs began to recover somewhat in late 2001, providing some temporary gains for stocks, before slumping again and then remaining more or less stagnant until early 2003, when employment and the economy really started to improve, along with stocks.
That should put some kind of damper on the current idea that firms, flush with cash from their post-crisis cost-cutting measures, are about to start hiring massively, jumping ahead of an economic recovery while the risk of a double-dip recession seems to grow by the minute.
As reported by payroll processor ADP on Wednesday, private-sector employment remained weak in June. Read more on private-sector jobs.
Consumer confidence has likewise taken a turn for the worst.
That led to a pretty dismal end for both June and the second quarter. The Dow Jones Industrial Average /quotes/comstock/10w!i:dji/delayed (DJIA 9,774, -96.28, -0.98%) fell 3.6% in June and 10% in the second quarter, marking its first drop after four straight quarters of growth.
The S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,031, -10.53, -1.01%) fell 5.4% in June, and the Nasdaq Composite Index /quotes/comstock/10y!i:comp (COMP 2,109, 0.00, 0.00%) fell 6.6%. The S&P 500 and the Nasdaq fell 12% each during the quarter, with the two indexes posting their worst quarter since December 2008.
Meanwhile, the government, whose fiscal stimulus measures did help create jobs and avoid the abyss two years ago, is now pressured by market ideologues to end measures that were too small to begin with and to abide by punitive spending cutbacks.
It unfortunately increasingly looks like the correlation will continue, with stocks going down along with rising joblessness in the second half of the year.
Nick Godt is MarketWatch's markets editor, based in New York.
The news that Microsoft Corp. is killing its much-maligned Kin phone project is not surprising, but underscores the enormous challenges facing the software giant in the mobile market.
7:27 p.m. June 30, 2010 | Comments: 6
- steverod | 11:38 p.m. June 30, 2010
"Japanese shares extend losses despite upbeat sentiment data http://on.mktw.net/dBCLdw" 7:24 p.m. EDT, June 30, 2010 from MarketWatch
"Bank of Japan tankan big manufacturers' sentiment index improves more than expected to +1 http://on.mktw.net/bjmRWY" 6:54 p.m. EDT, June 30, 2010 from MarketWatch
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"Over 2,300 comments since yesterday. What do you have to say? http://bit.ly/bQ8lAq" 5:53 p.m. EDT, June 30, 2010 from MarketWatch
"Microsoft scrapping its Kin mobile phones after less than two months of sales http://on.mktw.net/biwUs8" 5:34 p.m. EDT, June 30, 2010 from MarketWatch
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