Unemployment rates are still low 2022 has not been great for the stock market. Inflation has reached the highest levels in decades in the US, Europe, and elsewhere. Food prices have risen, and energy prices have reached extraordinary levels, which is threatening to impact Europe for years to come. The stock markets’ disappointing performance, according to analysts, is mainly due to action from central banks around the world. To fight inflation, those banks have raised interest rates steeply and quickly, which slowed down economic activity and compressed business profits. The question now is this: Will the hawkish cycle end anytime soon? The answer is in unemployment figures.
When will the Federal Reserve reverse course?
The answer to this question depends on many factors, but the main one here is unemployment. Central banks, including that of the US, the Federal Reserve, use unemployment figures to guide their monetary policy, which is important in steering the whole economy. Here is the latest unemployment data.
In October, Nonfarm payrolls grew by 261,000, better than the estimate for 205,000. However, the unemployment rate moved up to 3.7%. A broader jobless measure also went up to 6.8%.
Those figures are good from an employment perspective, but they will not prompt the Fed to start decreasing interest rates. The economy seems to be overheating with unemployment at very low rates, and this does not bode well for inflation.
This will also mean that it will be a slightly challenging environment for stocks until unemployment goes further up. You can trade share CFDs with a renowned broker like easymarkets . You can buy or sell those instruments, so you are able to find opportunities even in bear markets.
On Wednesday, The Labor Department reported that 240,000 people had applied for unemployment benefits in the previous week, an increase of 17,000 from the week before that. The four-week moving average also jumped up by 5,500 to 226,750. Despite all of this, the labor market remains tight, and companies are still struggling to find talented workers. Some estimates say that there are still two job openings for every unemployed person.
Still some more hawkishness to go
Based on the data, unemployment is increasing very slightly. But historically, its rate is still very low. This means that the Fed might still find it too soon to stop its rate hikes. The interest rate has already reached 3.75% - 4%, and with more way to go. Based on some economic principles, this rate is still low given the current inflation rate, and the leading rate is effectively negative.
Conclusion
There is a link between unemployment and actions taken by the Fed. To predict the latter, watch the former. Higher unemployment will get the Fed to become more dovish, which will in turn be positive for stocks. Thus far, unemployment is still very low. Investors would do well to gauge the sentiment and predict unemployment, to make better investment decisions. Once the hawkish cycle is over, chances are that we will see a turnaround.