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Client Update - Ciovacco Capital - Atlanta
Jobless Recoveries and
Stock Market Performance

July 29, 2010

We are all familiar with the common expression, markets do not like surprises. As it relates to the current state of the labor markets, the number of Americans filing first-time claims for unemployment insurance came in at 457,000 last week, which has again brought out comments from the media like "a figure that signals the labor market will be slow to improve even as the economy grows". Is slow employment growth a surprise to anyone? Expectations from almost all quarters call for slow improvement in the labor markets and persistently high unemployment. In fact, John C. Williams of the San Francisco Fed said yesterday:

Indeed, given the outlook for only modest growth through the end of the year, I expect unemployment to end 2010 at about its current level of 9 percent. Once growth picks up to a more robust pace, the unemployment rate should gradually decline, but only to about 8 percent by the end of next year. I expect it will take several years before it returns to more normal levels.

Not to discount the importance of job creation and the real hardships endured by thousands of American families, but financial markets have performed well in prior cycles despite "jobless recoveries". In the last recovery (early 2000's), job creation did not return for almost two years after the economy bottomed. However, asset markets performed quite well from October of 2002 to October of 2007, with the S&P 500 gaining 105% from the bear market lows to the bull market highs.

In the early 1990s, job creation was tepid as we emerged from a recession in March of 1991. From March of 1991 through year-end 1993, the S&P 500 gained 26% during a "jobless recovery". It is true markets do not like surprises, but weak job creation is a surprise to no one. In a similar vein, we noted recently in "Falling Consumer Confidence: Not a Death Knell for Stocks", it is important that we try to differentiate between economic concerns and economic concerns that historically have derailed bull markets.

Creating satisfying and rewarding jobs is extremely important to the happiness and well-being of Americans, but persistently high unemployment does not necessarily spell doom for the financial markets. Fortunately, rising asset prices can assist in rebuilding balance sheets at all levels of the global economy. Healthier balance sheets at the household, corporate, and government level can eventually lead to higher levels of confidence and job creation.

Concerns about the economy, markets, and job creation are all warranted, and the big picture needs to be monitored closely. However, it is important we understand how past economic concerns have impacted asset prices. Additional comments can be found in Short Takes.

Chris Ciovacco
Ciovacco Capital Management

Stock Market Blog By Chris Ciovacco of Ciovacco Capital


Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com

Terms of Use. The charts and comments are only the author's view of market activity and are not recommendations to buy or sell any security. Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period. Chart annotations are not predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. All material presented herein is believed to be reliable but we cannot attest to its accuracy. The information contained herein (including historical prices or values) has been obtained from sources that Ciovacco Capital Management (CCM) considers to be reliable; however, CCM makes no representation as to, or accepts any responsibility or liability for, the accuracy or completeness of the information contained herein or any decision made or action taken by you or any third party in reliance upon the data. Some results are derived using historical estimations from available data. Investment recommendations may change and readers are urged to check with tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS.