Using Unemployment Data to Time Equity Market Bottoms

IN THIS PUBLICATION:

• Unemployment data tells us we’ve not seen the bottom of the market yet (likely to happen only in 2023).
• Additionally, the market usually only bottoms when equity flows turn dramatically negative.
• This is not what we’re seeing right now by any stretch of the imagination, which again suggests that the market bottom is still ahead of us.

The Consequences of Higher Wages

Commodities have been, so far, the main engine driving inflation higher.

Sure, supply chain disruptions, labour shortages, fiscal support, and a generalized level of pent-up demand driven by long periods of lockdown have been large contributors to inflation, but market participants who believe that inflation has peaked argue that it is mainly because commodity prices (especially energy) are rolling over that we should see CPI continue to trend lower over the next months.

If inflation does roll over, it probably means that:

• We won’t be going through a recession as severe as we previously thought,
• The Fed might slow the pace of tightening, and
• Investors might once again become more bullish.

This line of thinking can naturally be extended to believing that we might have seen the bottom in equity markets.

But… have we?