Dividend-News

Daily dividend news for investors in dividend stocks


The Yield Curve And Stocks: Much Ado About Everything

Published Wed, 11 Jul 2018 15:38:28 -0400 on Seeking Alpha

There has been a great deal of chatter about the strength of the American job market. And with good reason. Most measures of employment health - U-2 unemployment rate, jobless claims, wage increases, year-over-year job growth, etc. - support the notion that U.S. workers are "winning."
On the other hand, very few folks have addressed the possibility that the data are more likely to weaken than strengthen. On the contrary. So much faith is being placed on tax cut stimulus that few discuss the potential erosion of employment prospects.
For example, when the U-2 unemployment rate in May hit a business cycle low of 3.8%, the financial media cheered. When it rose to 4.0% in June, the media applauded even louder, surmising that it was a sign that more people were coming back into the labor force.
Down is great? Up is great? What, then, would be a poor month for unemployment data?
There is, of course, another explanation. Perhaps 3.8% represented a business cycle unemployment low. In fact, unemployment rate troughs tend to precede economic contractions and/or stock bears by about one year.
The unemployment low in the previous expansion was 4.4% (October, 2006). The recession officially began in December of 2007, while the bear market for stocks began in October of 2007.
Similarly, a U-2 unemployment low of 3.8% occurred in April 2000. Ironically enough, the stock bear had already started in March 2000 and the recession was only one year away (March... Read more