I am completely baffled by the stock market's resilience lately, because the worst thing that could happen looks like it is happening.
What are we talking about? The increase in jobless claims. The last few weeks have made it clear an uptrend is taking place. It's so minor that it has largely gone unnoticed; but it definitely shouldn't go unnoticed by the stock market. Claims are one of the best leading indicators of both stock-market performance and economic growth, with a long and reliable track record.
And there are two troubling things happening right now: new claims for jobless benefits are rising, and the number of people continuing to draw benefits each week for lack of finding new work is moving higher as well. On a rolling four-week average, new claims have risen from just over 200,000 in January to 240,000 as of last week. "As claims rise, markets fall," warns Piper Sandler's Michael Kantrowitz. And yet the S&P 500 is still clinging onto a nearly 8% gain year-to-date.
Meanwhile, the number of continuing claims is also on the rise, from fewer than 1.3 million last September, to over 1.8 million as of last week. "Continuing claims are up nearly 14% from year-earlier levels, something unprecedented outside of situations where the U.S. economy is either in recession or a few months away from one," noted Roth MKM's Michael Darda last week.
And these data points are consistent with others that also show the labor market losing steam. The number of U.S. job openings has already dropped by a third from its year-ago peak, and with small businesses--where the lion's share of openings have come from--consistently reporting recessionary business conditions, and the post-SVB collapse credit tightening on top of that, a further pullback seems likely.
More broadly, the "employment trends index" tracked by The Conference Board since 1973 is also flashing warning signals. It peaked more than a year ago, a sign that payroll employment overall (and, by extension, a recession) should follow any moment now, as Tony Dwyer of Canaccord Genuity points out. Among the components pushing the index lower in March were job openings, jobless claims, temp-job hirings, a rise in involuntarily part-time workers, and weaker industrial production.
Should the Federal Reserve really be hiking rates at such a precarious time? Especially when policymakers cite labor market and consumer spending data, of all things, as showing resilience? Maybe they don't think the employment picture is slowing enough yet, but that's not quite what I'm hearing.
History says the labor market is about to slow more broadly, and the economy too. Neither the Fed nor the stock market seems persuaded at the moment, however.
See you at 1 p.m!
Kelly
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