Ouch! Unemployment at a four-year high sure doesn’t feel good….and it’s not. But, it’s not a wholesale reason to bail out of stocks. OK, maybe it is, but as always that really depends on a host of other things.

From a directional perspective, it’s bad. Rising unemployment is correlated with a falling market. And, not only is unemployment on the rise, it’s not yet at previous ‘high’ levels.

From an absolute perspective, it actually could be good. The higher it goes, the closer to a bottom (for stocks) we get. You’ll also see the market tends to rebound a few months before unemployment rates start to fall back. So, we don’t necessarily want to wait until we’re absolutely sure unemployment is improving to take an investment plunge. Besides, there’s no particular watermark that unemployment has to reach to peak. It peaked at 6.3% in 2003, but at 7.8% in 1992.

The point is, don’t jump to conclusions. There’s always more to the story.

As for our take on the current data, if we had to take a side we’d side with the bears for now. The correlation is just to strong. On that note - mostly for future reference - notice how strong the historical correlation is between cyclical bear markets and rising unemployment.

We’ll continue to watch all the important economic indicators though. Just bear in mind the market has a tendency to improve before the economy does; there’s no one-stop tool.

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