If unemployment levels remain low, how far can the stock market drop? – Not a discussion
Where is the market heading and when?
On August 29th, I asked Gaps Galore in the stock market, Where is the market heading and when?
- I think the S&P is heading to the 2400 level and the Nasdaq to the 6000 level.
- This is about a 50% drop from the top of the S&P 500 and a 64% drop from the Nasdaq.
One reader commented:It recorded a low 1% rise in the unemployment rate. This is totally crazy! There is absolutely no way for any of these indicators to drop to those levels without the unemployment rate exceeding 5% and staying there for 12 months.. “
The stagnation rate in the unemployment rate has risen since 1948
During the 2001 recession, the unemployment rate rose only 1.1 percentage points.
Percentages are slack beginning and end. Unemployment tends to rise after the recession ends but this was not the case in the pandemic short recession.
S&P 500 Discussion of the 2001 Recession (Main Chart)
- From the stock market’s peak in 2000 to the bottom of 2002, the S&P 500 has fallen from 1,530 (1,553 if you go back a few months) to 769.
- That’s a 49.8% drop from top to bottom.
- The peak was long before the recession, but many strongly believe that we are not in the recession yet.
Nasdaq 100, 2001 recession
Nasdaq 100 . recession notes
- Between March 2000 and the October 2002 low, the Nasdaq recorded gains of 43.1%, 32.8%, 53.7%, 59.3% and 22.9%.
- Despite those gains, two of them over 50%, the market is down 83.5%.
- The Nasdaq fell 56.9% before the recession started.
- The rise in the unemployment rate during the recession was just 1.1%.
The BLS (Job Opportunities and Employment Turnover) JOLTs report shows that there are an unprecedented number of 10.7 million jobs.
Employment levels in retirement age groups
In addition to 10.7 million jobs, as of January 1, 2022, there were 22 million workers of retirement age still employed.
10.3 million of them are over the age of 65. It’s possible that millions of them will retire reasonably soon.
Employment level notes
Go to follow
- In the DotCom 911 crash, the employment level fell by 1.1 million.
- In the Great Depression of housing, the employment level decreased by 6.4 million
- In the case of the epidemic recession of the Covid virus, the level of employment fell by 22.3 million, and this number was significantly underestimated according to the Federal Reserve Board.
Given 10.7 million jobs and 22 million people of retirement age still working, how fast will the unemployment rate rise?
- Employment: 158,290,000
- Unemployed: 5,670,000
- Unemployment rate = (5,670,000 / (158,290,000 + 5,670,000)) * 100 = 3.458%
Playing with numbers #1
- Assume a decrease in employment of 5 million to 153,290,000.
- Suppose the unemployment rate rises by 2 million to 7,670,000.
- Unemployment rate = (7,670,000 / (153,290,000 + 7,670,000)) * 100 = 4.766%
This is an overall rise in the unemployment rate of just 1.3 percentage points.
Playing With Numbers #2
- Assume a decrease in employment of 3 million to 155,290,000.
- Suppose the unemployment rate rises by 1.5 million to 7,170,000.
- Unemployment rate = (7,170,000 / (155,290,000 + 7,170,000)) * 100 = 4.441%
That’s an overall rise in the unemployment rate of just under one percentage point from here.
Pick your numbers and pick the start date of the recession, but this first set of numbers is fairly strong, estimating a 5.0 million drop in employment versus 6.4 million in the Great Recession.
I highly doubt the 5 million drop in employment, but if it does happen, the bulk of it will be in retirement.
Five main ideas
- The demand for workers along with retirement alternatives will prevent a massive rise in the unemployment rate.
- Unlike a pandemic, the Fed won’t step in for fear of provoking more inflation.
- Like the 2001 recession, expect many big stock market rallies that all die on karma.
- Given the strength in hiring, the Fed has plenty of room to run. I expect the Fed to overshoot, and then hesitate to act aggressively for fear of inflation.
- The longer the stock market and home prices stay on the rise, the more likely the Fed will rise.
Expect a long period of weak growth, whether or not a recession is prescribed
On August 19, I commented on the expectation of a long period of weak growth, whether it is a recession or not
On August 26, at Jackson Hole, Federal Reserve Chairman Jerome Powell pledges to “act with resolve” to beat inflation.
Key Powell’s comment:Lowering inflation is likely to require a sustained period of off-trend growth. “
Fed publicly cheers stock market plunge after Jackson Hole
If you still think my negative S&P 500 and Nasdaq targets are crazy, please consider the Fed publicly cheering the stock market plunge after Jackson Hole
This is the biggest bubble in the stock market ever. It was driven by massive quantitative easing from the Federal Reserve along with unprecedented fiscal stimulus.
Despite the current lows, stocks are still priced to perfection, not a prolonged period of weak growth with the Fed publicly encouraging its demise.
This post originated on MishTalk.Com.
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