Great news!
Fewer people applied for unemployment last week than at any time since 1973…
This tells us that the U.S. economy is healthier than most people expect.
Specifically, “initial jobless claims” hit a 42-year low – at 247,000 people. Basically, fewer people need jobs.
[ad#Google Adsense 336×280-IA]That’s good, right?
Now for the bad news…
The stock market typically performs terribly going forward after “great news” like this – losing money at a double-digit rate 12 months later.
Let me explain…
It may surprise you to hear it, but the stock market typically performs its best after BAD news on the employment front…
When the initial-jobless-claims number is high (which means a lot of people are out of work), stocks actually perform incredibly well going forward…
We quickly ran some numbers on this, and the initial results are amazing… When a lot of people need work – say 500,000 or more – stocks dramatically outperform over the following 12 months.
Going back to 1973, whenever initial jobless claims were 500,000 or more, stocks soared an incredible 24% over the next year. (We looked at a four-week average of jobless claims to smooth out the weekly jobless numbers.)
All of those bad extremes in jobless claims happened during recessions. (They happened in 1975, 1980, 1982, 1991, and 2009.)
Today, we are in the opposite situation… Fewer people are filing for unemployment than ever – just 247,000 last week.
Data going back to 1973 show it’s rare for this number to fall anywhere near this low. As I mentioned, this is actually bad news for the stock market going forward…
When the jobless-claims number is below 280,000, stocks lose money at a rate of 13% a year. (Again, we looked at when the four-week average was below 280,000, not just the weekly number.)
Don’t get hung up on the specific return figures. Pay attention to the overall point…
The U.S. economy, it appears, is healthier than previously thought, based on the latest jobless numbers. And history says that’s not a great thing for stocks.
This is one piece of evidence that could mean the end of the great boom in stock prices might be closer than many people think.
Good investing,
Steve
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Source: Daily Wealth