As 2019 ends and 2020 kicks off, we are writing you a series
of emails about markets and the economy.
The series in mainly visual, anchored with charts, but it includes brief
bullet point explanations of each chart.
The first few emails in the series examine the magic of the present bull market. We explore why we are at record levels in the S&P 500 and how we got here.
Other emails, in this series, will examine what’s been interesting and even unique about this bull market and, ultimately, what threatens the bull market in 2020 and beyond.
Certainly, a key to the bull market has been a
very strong labor market. The monthly
unemployment survey is at a generational low (3.5%), while the stock market is
at all-time highs.
A strong job market gives consumers the
confidence to spend. By most measures,
consumer spending represents about two-thirds of American economic activity, so
the U.S. economy can only thrive when Americans are working and spending.
The above chart of U.S. initial weekly jobless
claims clearly corroborates the falling unemployment rate. Since 2009, fewer and fewer people have filed
for unemployment each week.
If you plot the inverse of the above chart
against a chart of the S&P 500, the correlation is extreme. In other words, as the labor market has
improved, the S&P 500 has climbed higher.
This correlation has been in place since very early in the bull
As mentioned, a byproduct of strong employment
is strong consumer confidence, which the above monthly survey clearly
Although confidence is high, and has been high
for years, it’s important to note that confidence hasn’t reached extreme
Sometimes confidence can be a contrarian
indicator, like in 2000, because confidence can lead to complacency.
Extreme levels of consumer confidence do not
always precede a recession or bear market (see 2007, prior to the Great
Recession, when consumer confidence was elevated but nowhere near extreme
levels). However, consumers appear to be
confident, but not too confident, and potentially at levels that could be
supportive of further economic expansion.
In our next note, we will look in greater detail at how and
why the bull market continues into 2020.
As always, thank you for working with us. We hope your holidays are off to a great
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