Wednesday, February 23, 2011
This is an intriguing chart, inspired by one created by macrofugue. (HT Abnormal Returns)
It's a relationship that just makes common sense (e.g., declining claims reflect a healthier economy and a healthier economy drives equity prices higher). Nevertheless, the fact that the equity market has responded quite faithfully to changes in the economic fundamentals goes a long way to refuting the bears' claim that equity prices have been driven higher by easy money, that the economy remains plagued by deep-seated problems, and it is all a house of cards ready to collapse. To me it has seemed rather obvious that the equity market rally has been driven all along by news of improvement in the economy, and declining unemployment claims is just one manifestation of that improvement.
Posted by Scott Grannis at 6:24 PM