I've been wondering what effect the upcoming unemployment rate is going to have on the stock market and more importantly the S&P 500. It seems as though a high unemployment rate will hurt the stock market as consumers spend less but it will also helps strengthen companies through reducing expenses. To help us figure out what the effect could be, I went back to the 1980's where unemployment reached 10%. I'm assuming that with all the job cutting news we'll probably come close to the 10% level again.



In the chart above it appears as though the S&P 500 was hurt when the unemployment rate started rising but as the rate slowed to a steady growth the effect was positive for the stock market. I'm going to continue to add to the Market Flavor portfolio but I don't want to make a big buy until the stock market dips again. It sure seams that we'll see another drop around the Christmas season as unemployment rises and consumers reduce spending.

The S&P 500 line is the actual values divided by 10 so that the chart line compares better to the historic unemployment numbers. All S&P 500 numbers were taken from the closing at the end of the quarter. The historic unemployment numbers are seasonally adjusted.

Tags:   Stock Market Outlook  

Posted on November 4, 2008 5:34 AM | Digg | del.icio.us