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How can the economy keep growing—and stocks keep rising—when over 15 million Americans are out of work? That question has been on investors’ minds for weeks, since June’s Employment Situation Report showed that even after a huge surge in payrolls, 17.8 million people are still out of a job.[i] Further, that was before some states began shutting down some activity anew amid a COVID resurgence. A wave of retail bankruptcies and corporate announcements of layoffs in the ensuing weeks further fanned the fears. Joblessness is a personal tragedy for those affected, and we don’t dismiss it. Fisher Investments’ research shows, however, that stocks are leading indicators and have a long history of turning around long before the job market does.

Consider the bull market that began in March 2009, in the aftermath of the global financial crisis. At the time, the US economy was still mired in a recession that wouldn’t end until the calendar flipped from June to July. The most recent Employment Situation Report available, for February 2009, showed 12.9 million people unemployed.[ii] That figure kept rising for 8 months, peaking at 15.4 million in October 2009. Even in the economic expansion’s first four months, employers were shedding millions of jobs. Yet by that month’s end, the S&P 500 had jumped 53.2% off its March 9 low.[iii]

Prior recoveries tell a similar story. The multiyear bear market that accompanied the dot-com crash ended on October 9, 2002. The number of unemployed people didn’t peak until June 2003. From the S&P 500’s low through then, stocks returned 25.5%.[iv] The dot-com crash ended a bull market that began way back on October 11, 1990, when the September 1990 employment report had just showed 7.4 million folks out of work. That dismal figure climbed until June 1992, when it topped out at 10 million. From stocks’ low through June 30, the S&P 500 returned 38.1%.[v]

Simply put, in Fisher Investments’ experience, waiting for the labor market to sound an all-clear signal is a fruitless endeavor—typically a ticket to missed returns. It is also an illogical one, in our view, when you consider the relationship between economic trends and hiring. From a business owner’s perspective, hiring people is an investment with a relatively high up-front cost and no immediate payoff. It takes weeks or even months before a new employee is fully trained and up to speed, generating a return on salary and training costs. Letting talented staff go is generally a business’s last resort, especially because they know that when the situation turns around and they need to fill the position again, they will have to start from scratch. Therefore, when the business cycle turns south, businesses generally cut all other expenses before trimming headcount. This is why business investment and inventories are usually among the first categories to fall when recession strikes. Staff reductions tend to come later. They also usually mount even after the recovery takes hold, as economic turning points are clear only in hindsight. The only thing clear in the moment is the need to keep cutting costs.

Even after revenues begin improving, businesses will generally try to continue doing more with less, squeezing growth out of productivity gains. They want to avoid the large up-front investment hiring represents, especially if they aren’t very confident in the recovery’s staying power—a normal sentiment early in expansions. Only once they have finished getting all they can from technology and increased efficiency—and when they have confidence and confirmation that recovery is indeed underway—do they generally begin hiring again. It takes that long for them to be certain that continued business growth will justify the investment in new staffing.

But stocks, as leading indicators, move in advance of all of this. We think they generally look 3–30 months ahead and reflect economic improvement long before it leads to increased hiring. That is the simple answer to the question with which we started out. Stocks can rise when millions of Americans are sidelined because they are looking ahead to a time when earnings and revenues will be higher, enabling companies to eventually put these people back to work. The apparent disconnect between the two in the meantime, in our view, is part of the typical “wall of worry” new bull markets climb.

Investing in stock markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance is no guarantee of future returns. International currency fluctuations may result in a higher or lower investment return. This document constitutes the general views of Fisher Investments and should not be regarded as personalized investment or tax advice or as a representation of its performance or that of its clients. No assurances are made that Fisher Investments will continue to hold these views, which may change at any time based on new information, analysis or reconsideration. In addition, no assurances are made regarding the accuracy of any forecast made herein. Not all past forecasts have been, nor future forecasts will be, as accurate as any contained herein.


[i] Source: U.S. Bureau of Labor Statistics, as of 07/13/2020.

[ii] Source: FactSet, as of 07/13/2020.

[iii] Source: FactSet, as of 07/13/2020. S&P 500 price return, 03/09/2009–10/31/2009.

[iv] Source: FactSet, as of 07/13/2020. S&P 500 price return, 10/09/2002–06/30/2003.

[v] Source: FactSet, as of 07/13/2020. S&P 500 price return, 10/11/1990–06/30/1992.