Posted by kdadmin on July 27th, 2015.
Supposedly, the best blog posts are less than 500 words. Let’s see if you can learn to interpret the global unemployment market in less than 300.
Look at the chart above. Which country’s stock market would you expect to have done the best?
If you guessed, the USA, you were right. After all, what does a 35% drop in unemployment mean? More jobs. More employment. More money for more consumers to spend on more stuff to drive more profits to increase more earnings to drive up stock prices.
Now, look at a country like Greece. Its unemployment rate has increased by 14% in three years. Currently, it’s at a staggering 27%. Guess what’s happened to their stock market? It dropped by 18% in contrast to the USA’s 52% gain. What does this mean? Fewer jobs. Less employment. Less money for fewer consumers to spend on less stuff to drive fewer profits which results in lower earnings and reduced stock prices.
Looking at this chart, you see that the UK is second best, followed by Germany, the broader Eurozone and France. But this chart is relative to where they started. The UK and Germany have an unemployment rate of about 5%, just like the USA. Whereas France and the Eurozone hover around 11%. Now, if you were going to buy a foreign asset, into which country would you buy? Probably the UK and Germany. And, although Germany’s stock market has done better than the UK, it is still subject to the Euro and Greece’s insanity; that’s where the UK shines.
Does unemployment rate ALWAYS drive a country’s stock market? No. But it’s a remarkably good indicator, especially for countries like the USA in which consumer spending accounts for so much of GDP.