The main takeaway from the June labor market is the increase in the unemployment rate to 4.1%, i.e. 70 bps above the cycle low (3.4%). This is a big deal from a macro point of view, however the S&P500 does not care and on the day the unemployment rate rose to another cycle peak - it also set its own all-time high.
How has the S&P500 dealt with such a situation historically - as a rule, the rising unemployment rate sooner or later marked a peak in the index. Then, a further increase in the unemployment rate resulted in declines in the S&P 500 - see Figure 1. As a rule, a stronger increase in the unemployment rate also means the occurrence of a recession.
Evidently, this time investors are not worried yet and are counting on a soft landing. Interestingly, during the previous soft landing in 1995, the unemployment rate only increased by 40 bps (April 1995) and then began to decline further... Yes, it was a real soft landing.
Figure 2 shows the S&P500's returns during consecutive bull markets starting near the top in the unemployment rate.
In two cases (1987 and 2022) we had a bear market without a recession and without a cycle in the unemployment rate.
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