Throughout our research of various economic statistics that impact the stock market, no economic indicator has been more impactful this cycle (defined as stock market movement from 2009 – present) than the improvement in weekly jobless claims. Our research shows a very strong correlation between improvement in jobless claims and a higher level stock market. As outlined in our article, there are numerous strong associations between jobless claims and the level of the S&P 500 stock index. For example, the S&P 500 reached its bottom at almost the same time as jobless claims reached their peak during this current cycle. The S&P 500 reached its lowest level on March 6th, 2009 at 683, just 3 weeks before the peak, or highest level, of initial jobless claims on March 27th, 2009 at 667,000. Since these extremities, weekly jobless claims have cascaded down to a level of 340,000 to start 2013 and the S&P 500 has soared to over 1,500. In quantifying this relationship between claims and the S&P 500, we have conducted a regression of the two variables on a weekly basis from 2007 through 2013. The R-squared between the two data sets is 0.87, which means 87% of the time an improving jobless claim report (or a decline in claims) results in a rising S&P 500. Any R-squared over 0.70 in quant is deemed as statistically significant.
With average hours worked per week as reported by the BLS now returning to near 2007 highs, employers could be forced to hire more employees which would continue to keep jobless claims improving which has kept the stock market in an upward trajectory. The most recent reading of average hours worked in a week was 34.5 hours at the end of February ’13, off of the lows of 33.8 hours in August 2009. The all-time high market was 34.7 hours per week in December of 2006, near the last peak of the market.
With average hours worked per week continuing to improve, which should continue to put downward pressure on jobless claims (which has historically moved stocks higher), investors should continue to consider leading stock based exchange traded funds including the iShares Russell 3000 Stock Index exchange traded fund (IWV), the Vanguard Total Stock Market exchange traded fund (VTI), and the iShares Core S&P 500 exchange traded fund (IVV) to capture incremental gains in the stock market.
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