Some time ago Warren Buffett has said that the way to become rich in the stock market is to “be fearful when others are greedy and greedy when others are fearful.” There is hard data around proving that buying stocks when things look pretty bad pays off.
There is a very simple economic indicator that is accessible to everyone that proves this: The unemployment data!
Check the unemployment data v stock market return. You will be very surprised that the higher the unemployment number, the better the performance of the stock market:
Unemployment: <9% - S&P 500 annualized returns: 24.5%
Unemployment: <7-9% - S&P 500 annualized returns: 15.1%
Unemployment: <5-7% - S&P 500 annualized returns: 8.3%
Unemployment: >5% – S&P 500 annualized returns: 3.9&
There is a strong correlation between unemployment levels and stock market returns:
1. The best time to buy stocks is when unemployment levels are high.
2. The worst time to buy stocks is when unemployment levels are low.
Sven Franssen