I published this chart before the May jobs report came out because I expected the jobs report to be strong (meaning more new jobs created than Wall Street Expectations). The jobs report was stronger than expected, See this headline, for example, "May Jobs Report Stronger than Expected with 280,000 Jobs Added."
More jobs is good for people looking for jobs, and for those who took the jobs. Is a strong jobs report good for the stock market?
The last two big market turns came with 'contrarian' employment reports. On March 9, 2009, the Dow Jones Industrial Average closed at 6,547 -- Yes, that starts with six thousand. This was an amazing buying opportunity!
What was going on in the jobs market when we all should have been buying stocks? The job market was terrible. Employers were firing workers left and right.
In March 2009, the best buying opportunity for stocks in more than a decade occured in the middle of a series of horrible job reports.
Conversely, the best time to sell stocks in the last decade was the fall of 2007. The Dow peaked at over 14,000 before losing more than 50% of its value. What was the job market like before the stock market collapsed in 2007?
The employment market was very strong in 2007 before the stock market collapse. By way of comparison, May 2015 "unexpectedly strong" employment report reflected 280,000 new jobs. In 2007, there were two months with over 500,000 new jobs.
So what do we conclude.
in 2007, when it was time to sell stocks, employers were hiring like crazy.
in 2009, when it was time to buy stocks, employers were firing like crazy.
This suggests that employment is a lagging indicator. It takes many months to post a job and find an employee. Thus, May of 2015's employment report reflects business conditions from 2014. Investors should not buy stocks because May's employment report was stronger than expected.
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