The S&P 500 index has rallied 40%+ from its March 2009 low, and is up 8% Year To Date. Despite this solid performance, unemployment has surged to 9.7%, and many forecast the increase will continue until 11-13% unemployment. We’ve got 12% unemployment here in California already.
The question I have is: How high can the unemployment rate go before the bull market derails? Is the level 15%, or is the level as high as 20%? I cannot imagine being unemployed and desiring employment in this market. There’s just so little out there and the competition is tremendous. For those who are already employed, things seem hopeful that with earnings rebounding from 2008 and less people to pay, 2009 could be a big year.
Is the market currently being driven by the “90% employed” segment of the population who thinks the other 10% doesn’t really matter to the economy’s bottom line? With consumer spending consisting of 70% of GDP, how can we ignore the fact that 1 out of every 10 are not working, and likely another 10% are underemployed and looking for more work to survive? Am I looking backwards, since unemployment is a lagging indicator, and the stock market is a leading indicator?
It absolutely perplexes me that euphoria is back in the markets. We shouldn’t be surprised if we double dip in 2H09, and see a long drawn out recovery until mid 2010. Personally, I’m raising cash by pulling money out of the market. We’ve had a great rebound and I don’t want to get greedy.
Readers, where do you think unemployment levels are heading and what are your arguments if you think the markets are going higher?
Update: At 10.2% unemployment as of Nov 7th, 2009, apparently very high!
Financial Samurai – “Slicing Through Money’s Mysteries”