Stock Markets: Economic Growth Paired with High Unemployment

“Economic growth with continued high unemployment will lead to stock market growth and deep short term corrections. A dangerous trading ground for the small investor.”
We said it in multiple of our publications: The US economy is in a an uptrend with high and to be continued unemployment. As a point of reference: http://NeverLossTrading.wordpress.com.

Friday, the Labor Department said that non-farm payroll employment fell by 131,000 jobs in July following a revised decrease of 221,000 jobs in June. Economists had expected employment to drop by 87,000 jobs compared to the loss of 125,000 jobs originally reported for the previous month.

At the same time, the report showed that the unemployment rate came in unchanged compared to the previous month at 9.5 percent, reflecting a decrease in the size of the labor force. Besides those jobs that disappear many of the non-registered workers are out of jobs or even out of the country. So we definitively have a decrease in size of labor registering for unemployment.

This is a big issue for the government is to cope with the additional costs and requirements of a 10% unemployment rate. A long needed restructuring of taxes, health care and social benefits is on the horizon. As a result of ongoing good corporate earnings and growth we will see economic progress which lets the markets climb, followed by sharp pullbacks on all issues to cope with the high unemployment.

Supporting indicators for our assumptions:

Kraft Foods Inc. said that its second quarter profit rose 13 percent from last year. However, quarterly revenues came in positive but lower than forecast, and the company trimmed its full year revenue growth projections.

Healthcare provider stocks are posting some of today’s steepest losses, resulting in a 2.4 percent drop by the Morgan Stanley Healthcare Provider Index.

Look alone at Fridays trend of the major indexes and this just shows on the short term what to be expected long term.

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