Davidson is right here. The weekly and monthly data points only matter in their context to the longer term trend of the data. Shorter term data is inherently volatile and revised materially later making its immediate use in predicting any trend virtually useless. Additionally, temporary weakness in one data point can be offset by strength in another making that weakness just a blip.
The ‘Big Picture’ is the only view which matters for investors in my opinion. If the major economic trend reflects more people working, then the economy is expanding. It can be no simpler than that!
At this year's SALT New York conference, Cathie Wood, founder, and CEO of ARK Investment Management LLC, spoke about her view on Bitcoin, the outlook for Tesla and Ark's investment process. Q2 2021 hedge fund letters, conferences and more The investment manager explained that the team at ARK has a five-year investment horizon, with a Read More
The relationship between the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and employment is shown in the chart below. SP500 is shown as the BLACK LINE-Household Survey(Employment) is show as the BLUE LINE. The correlation between the employment trend and the direction of stocks should be evident. The current employment trend remains decently positive and we should expect stocks to follow as improvement in personal income results in higher corporate profits. Higher stock prices has historically been the result. It is then only a matter of selecting well managed companies and/or portfolios and letting ourselves be carried along by the rising tide.
Using employment and its related indicators(Temporary Help, Help Wanted Online, ASA Staffing Index and etc.) as a means of judging where we are in the investment cycle is very useful. The SP500 in this study has never had a cycle peak unless we also had an economic cycle employment peak-see the chart. The relationship is such that employment provides up to 24mos warning that the economy is slowing and that a stock market peak is developing.
The current employment trend shows no indication of forming a peak.
The many current calls for a stock market top are similar to the many calls we have experienced since Dec 1977. They reflect the wide spread perception that recent stock prices control future stock prices. Nothing could be further from the truth! It is the economy which controls investor perception of stock values over the long term.
There are no indications that the current economic cycle is slowing. Stocks should continue to rise with future economic trends, economic expansion and corporate earnings.
In fact, there are very few who truly follow the long term relationship between employment and stocks. All have access to the same information, but the relationship shown here seems to be used by only the very few. My estimate remains that we have yet 5yrs-7yrs left in this economic/investment cycle. Housing and commercial construction still have their economic impact to add to the economy. Low mortgage rates slow bank lending. Bank lending should increase as the 10yr Treasury rate rises. We should cheer if the 10yr Treasury rate rises over 3%.