NonFarm Payrolls Suggest Higher Market
There are two reasons why the market is screaming higher – enormous liquidity and an improving economy.
An ocean of liquidity has flooded the markets, thanks primarily to the Federal Reserve and government programs. One can either surf the ocean (by going long) or drown in it (by going short). The tricky part is getting safely to shore on the surfboard when the tide goes out.
The economy is undoubtedly expanding. Economists are expecting the nonfarm jobs report for March to be 200,000. I am hearing the print could be as high as 300,000.
Generally, the market moves higher when nonfarm payrolls turn positive. At the end of the previous six recessions, the average gain of the S&P 500 a year after NFPs turned positive for good has been +5.7%. In only one instance was the market negative a year later, which was in 1981. Not coincidentally, nonfarm payrolls turned negative in September 1981 as the economy plunged back into recession. The highest one-year return was +9.5% in 1976.
This pales in comparison to buying the market at the depth of the recession. At the nadir of job losses, when job losses are at their worst, on average the market was 43% higher a year later.
Contemporary history suggests that the market is headed higher from here, though most of the returns have most likely occurred. The question is whether or not this time period is contemporary?
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