May explain some of the current sentiment: Read, recession is a bad thing only if you're the one in the unemployment line. If the market went up during the last recession, why not this time as well ?
9:29 AM
ECONOMY TALK: To most, the decisive weakness in the employment report is probably a shock. After all, the loss of 223k jobs was well below the street’s low estimate—my own, at –75k. There will now naturally be a jump to the conclusion that the economy might tilt toward recession. Short-term trend reversals in stocks and bond ware likely. But it is widely believed that unemployment rate, at 4.5% in April versus 4.3% in March (consensus 4.4%), is a lagging indicator. While this notion is not likely to gain much acceptance today, history tells us that the markets ultimately behave in a way that indicates nearly universal belief that the employment data is a lagging indicator. Indeed, during and after the last recession of 1990-1991, although the unemployment rate rose sharply, so did the stock market. The S&P 500, for example, which bottomed in the middle of the recession in October 1990, gained 45% even as the unemployment rate soared from 5.9% in October 1990 to 7.8% in June 1992. Similar market behavior occurred in the previous recession of 1981-1982. So, the main point is that at some point, be it hours, days, or weeks from now, the markets will likely come to the conclusion that it always has: the unemployment rate is a lagging indicator. In an odd way, the weak report can actually sow the seed for a stronger stock market by lowering the market’s expectations over the condition of the labor market. In other words, continued weakness in the employment statistics will help the markets to become accustomed to them. Moreover, if the equity market ultimately rebounds from its initial angst over the employment report, it will go a long way toward immunizing it from weak employment data in the months ahead, as was the case in the past two recessions. The bond market will experience a similar fate, reversing its initial optimism at some point. More to come. |
