Real S&P 500 Growth vs. Unemployment Growth

This shows the change in unemployment rate over the last six years (for example, if the unemployment rate rose from 4% to 5% over the six year period that would show as 1% on the chart). This chart also shows the inflation adjusted growth in the S&P 500 index over those same six years (annualized to show the average annual growth).

Note that it is actually an inverse relationship since I have flipped the S&P 500 index growth side upside down (rising unemployment tends to lead to a struggling stock market it seems, but we probably could have guessed that).



Why six years? To quote Greenspan, that is a conundrum. I tried many different periods (in one month increments). Six years was simply the period that showed the highest correlation in the data I was using. If you expect unemployment to be much higher in six years than it is now, you might not want to purchase stocks. If you expect unemployment to be roughly the same or lower in six years, you might want to purchase stocks.

Since I am somewhat bearish on our economy, you can probably guess what I'd be doing (that doesn't mean I'm right though).

This is most certainly not investment advice. Further, just because this has seemingly been the trend in the past, it can't predict the future (for example, it knows little of the global economy as it is simply a chart). If you think this chart has merit, then please plot it for yourself and don't rely on anything I might write. I'm just a random Internet blogger posting my thoughts in public. The data is certainly available.

Source Data:
St. Louis Fed: Civilian Unemployment Rate
St. Louis Fed: Consumer Price Index For All Urban Consumers: All Items
Yahoo Finance: S&P 500 Historical Data

As seen on Yahoo's website, historical chart data and daily updates provided by Commodity Systems, Inc. (CSI).

Disclaimer: Yahoo provided a spreadsheet download link so it is fairly clear that I was free to download the data. Since I am not actually sharing the raw data and I am crediting the sources, I am assuming that I am not infringing on anyone's copyright.