Relationship Between S&P 500, Inflation, Unemployment, Fed Rate
People always wonder what the next catalyst is for the next recession. In the 2000s, it was the .com bubble, in 2008, it was the housing crisis, in the late 60s - 70s, it was inflation combined with the FED hiking rates. We are in a very similar situation now to the 70s. The unemployment is currently low, inflation is rising, and the FED is hiking rates. The market is therefore pricing in high unemployment, slower economic activity with heightened rates, and thus a recession.
Here's how we use this to our advantage. It's important to understand that the stock market prices the economy months in advance. Historically, when inflation has peaked, and the FED begins lowering rates, and unemployment just begins spiking, the bottom was in.
In conclusion, wait for what the CPI numbers end up being each month, see if the FED starts to lower rates, and watch the unemployment rate. Once inflation peaks, the FED lowers their rate, and we get an unemployment spike, the bottom is likely in. Effectively, when the recession starts, the stock market begins its next bull run. All this applies to an economy with high inflation - it's much less similar to the .com bubble/housing crisis.
Here's how we use this to our advantage. It's important to understand that the stock market prices the economy months in advance. Historically, when inflation has peaked, and the FED begins lowering rates, and unemployment just begins spiking, the bottom was in.
In conclusion, wait for what the CPI numbers end up being each month, see if the FED starts to lower rates, and watch the unemployment rate. Once inflation peaks, the FED lowers their rate, and we get an unemployment spike, the bottom is likely in. Effectively, when the recession starts, the stock market begins its next bull run. All this applies to an economy with high inflation - it's much less similar to the .com bubble/housing crisis.
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The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.