Every Time This Has Happened Over the Last 50 Years A Recession Followed

Danielle DiMartino Booth, a former Federal Reserve insider, recently wrote a great article for Bloomberg. In it she provides a couple informative stats involving the relationship between unemployment rate changes and recessions.

First, she points out, “According to historic payroll data and the National Bureau of Economic Research, every time the three-month average unemployment rate exceeded its six-month average at cycle peaks over the past 50 years — like it did in January — the U.S. economy has experienced a recession.”

She then highlights support for this with a statement from Former Federal Reserve Bank of New York President, William Dudley, in a 2016 speech he gave to the International Monetary Fund, “Looking at the post-war period, whenever the unemployment rate has increased by more than 0.3 to 0.4 percentage points, the economy has always ended up in a full-blown recession…”

Here is a 1-year chart of the unemployment rate showing a double-bottom at 3.7% and recent increase to 4.0%.

 

This provides further support that the current market rally may simply be a bear market rally (aka bull trap) similar to those that have been experienced in every single bear market since at least 1973 of which I wrote about here.

The lesson from history is to not overextend yourself and only take on as much risk as you can afford (either emotionally or financially).

 

Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much data used to interpret the markets may often be at odds and can result in different conclusions.

This is NOT investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances is completed.

 

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