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Employment and Stock Market Returns

Posted in Economic Indicators, Equity Premium

U.S. job gains or losses are a prominent element of the monthly investment-related news cycle, with the financial media and expert commentators generally interpreting changes in employment as an indicator of future economic and stock market health. One line of reasoning is that jobs generate personal income, which spurs personal consumption, which boosts corporate earnings and lifts the stock market. Are employment trends in fact predictive of U.S. stock market behavior in subsequent months, quarters and years? Using monthly seasonally adjusted nonfarm employment data from the U.S. Bureau of Labor Statistics (BLS) and contemporaneous S&P 500 Index data for the period January 1950 through April 2018 (820 months), we find that:

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