The chart above is similar to one featured on page one of Friday’s “The Gartman Letter” (courtesy of Charles Brady at Fox Business Network), and shows the amazing correlation over the last five years between: a) the S&P 500 Stock Index, and b) the 4-week moving average of initial jobless claims (inverted). As Dennis Gartman commented about this “stunning” correlation: “As go claims, so shall go the stock market.” Yes, the correlation is quite stunning at -0.93, and I had to check for myself and was thus inspired to create the chart above. Perhaps this correlation has been documented before, but it’s new to me and perhaps to many of you, too.
What about over a longer period of time? The chart below shows the same two variables back to January of 2000, and over the last 13 years the correlation between the stock market and jobless claims (inverted) is still pretty strong, although the correlation coefficient drops to -0.68.
Bottom Line: No deep thoughts about this, other than to observe that the US stock market and labor market are highly correlated, but that is really nothing new; it’s just interesting to see how highly correlated the two markets have been over the last five years. And now that the S&P is at the highest level in more than five years (since December 2007) and apparently heading even higher this year, we can look for a gradually improving labor market and continued decreases in jobless claims.