Don’t Fight the Fed – Keep Your Eye on Jobless Claims
By: Jeffrey A. Hirsch
April 09, 2020
Everyone on Wall Street is debating and looking for the perfect dataset or indicator to tell if the bear market ended on March 23, 2020. It may very well have, but we won’t know for sure until we have a little more hindsight. But we must push on. With the USA on virtual lockdown and many businesses closed for weeks with the prospect of being closed for several more weeks if not months, a recession is quite likely.
We know the market leads recession by several months. On average since 1948, bear markets start about 8-9 months ahead of recession though the last bear 2007 began just about 2 months before the recession. Bear markets end about 3-4 months before the end of the recession. The last recession ended in June 2009 about three months after the bear market low in March 2009. So if February 12 was the beginning of the bear market and March 23 was the bear market low then the recession could be rather short-lived. 
The lingering effects of the pandemic could mute economic activity for some time if there is not clear medical solution for COVID-19. But once the coast is clear there is likely to be a good deal of pent up demand. We applaud all the scientific efforts to develop a vaccine and therapies and all fiscal stimulus to help business and individuals. 
But the clincher as far as the market is concerned is that the Federal Reserve has been extremely supportive and plainly stated it will dump as much money as necessary to prop up the economy and market and fund the stimulus until there is a medical solution and or the economy finds footing – as the old saying goes: “Don’t Fight the Fed!”
One metric we have always found useful in identifying bear market lows is the trend of Weekly Initial Jobless Claims. Initial Claims the past three weeks have been massive and historic, threatening to push unemployment near levels of the Great Depression. But if the trend continues, Initial Claims may have peaked already. 
In the chart we have omitted Initial Claims of 3.3 million, 6.9 million and 6.6 million the past three weeks as they would literally be off the chart. Also we have plotted DJIA on a logarithmic scale so that the highs and lows of the past would be discernible. All the bear market lows for DJIA associated with a recession line up quite well with the spike peaks of Weekly Initial Jobless Claims. 
Bear markets like 1987, which was a computer driven crash, were not accompanied by recession or an increase in Jobless Claims. But all the big bear market lows of 1970, 1974, 1982, 1990, 2001 and 2009 were marked by the peak of Jobless Claims. So keep your eye on Jobless Claims for continuing confirmation that the low is in.
DJIA/Jobless Claims Chart