The Little Book of Market Myths: How to Profit by Avoiding the Investing Mistakes Everyone Else Makes

Chapter Twelve

High Unemployment Kills Stocks

“High unemployment is an economic and stock market drag.”

This myth—and it is decidedly and eminently provably a myth—is about as ingrained an economic/investing myth as ever existed. It ranks up there with the belief that federal debt is inherently bad (more in Chapter 13) as myths everyone believes—with their souls—no matter their ideology or creed.

Every politician declares high unemployment is bad for the economy—and therefore the stock market. (But it’s never their fault! It’s always the fault of their opposition.) And politicians are united in their intransigent view that high unemployment causes economic weakness.

Yet this is utterly backwards. Unemployment can be excruciating for the unemployed and their families, and we’d all prefer that everyone who wants a job could more easily get one. However, that doesn’t change the fact unemployment is now, always has been and always will be a lagging indicator. Said another way: Unemployment, high or low, is the result of past economic conditions, not a cause of future economic direction. We do not need low unemployment for the economy to grow, and high unemployment will not hinder economic growth going forward. Economic growth drives the need to hire, and a contracting economy drives the need to reduce headcount.

All of this is easy to see if you think like a CEO would and not like a politician wants you to.

See It Like a CEO

Pretend you are CEO of ABC Widgets, Inc. After four or five ...