COVID Investing

If I told you that the unemployment rate was 11.1%, GDP was down -5%, personal income was down -4.2%, what would you think would happen to stocks? Most people would assume stocks would be lower. And most people would be wrong.

Hands with latex gloves holding a globe

In a blog post titled, “The Unemployment-stock Market Correlation in One Chart”. Chris Preston presents a chart that shows the nearly perfect inverse correlation between stock performance and the rate of employment in the U.S. for the last 30 years. While this is not anything new, it is important to study historical data to get an idea to see in which part of the cycle we currently find ourselves in.

Stocks & Unemployment

COVID-19 has made this cycle unique in many ways, but the same in others. I believe the correlation between unemployment and stocks is still relevant, and future returns are tied to future unemployment numbers. Even though many believe stocks are supposed to be lower, and we can debate how much lower they should be, I think the market is focused on the expectation of future employment numbers, even more than the balance sheet of the Federal Reserve.

The reason why stocks have managed to continue to trend higher is not because of Fed manipulation, (although that is definitely a factor), it is mainly tied to unemployment and future expectations of the rate of employment in the country. Preston says, “as 30 years of history on this chart tells us, stocks won’t continue to rise unless the unemployment rate continues to fall sharply, considering how historically high it remains. Only a falling unemployment rate translates to rising share prices.”

The Evidence

So far, the bulls have been right. Economic data has gone their way. The unemployment rate went from 14.7% in April down to 11.1% in June. If you tracked that movement on a chart, stocks dropped more than 34% prior to the peak in unemployment back in March. This coincided with the top in stocks in February, which was also near the bottom in unemployment at 3.5%. Since we all know stocks are forward looking, this makes perfect sense. Therefore, I try to focus on the bigger picture and try not to get caught up in short term volatility and news cycles.

Bottom Line, stocks are neither undervalued, nor over-valued right now. I believe valuation does not matter for the moment. All investors are focused on is resumption of economic activity and how that will look from now on. The unemployment rate continues to be a significant indicator of future stock performance, but it is a lagging indicator, and stocks will often move before the unemployment numbers are published. The best thing we can do is invest in stocks if the unemployment rate continues to trend lower. Once the rate stabilizes, it will be time to get selective. For now, it is best to Buy weakness and sell into strength. That has worked all throughout this crisis. I do not expect that to change anytime soon.

Where can I research stocks?

Back in the days it was extremely complicated to research information about a particular company. You had to go to the library and sort through thousands of microfiche in order to get information that was already 6 months to a year old. With the internet revolution, finding information has become child’s play. The flow of information is instantaneous and easily accessible to anyone. Fortunately for us, we can access the same information big time fund managers have access to when picking stocks.

Following, I will present you with a few sources for information. Ideally, the best option is to subscribe to a good independent research house. Prices for such services have come down to very affordable levels. But for the sake of this post I will present you with free online sources.


Google Finance

Here you can find almost about anything regarding your favorite stocks. From historical prices to earnings reports and charts. Google Finance gathers the information from its internet database and compiles it all in one place.


Seeking Alpha

Seeking Alpha serves as a large community of research analysts who wish to publically share their analysis. Here you can find more in depth information about a particular stock or industry. The issue with this site is that there is so much information on it that it may be a little time consuming to find what you need. But if you take the time to dig, you will be greatly rewarded with unique content.


Yahoo Finance

Yahoo Finance is Google Finance’s double ganger. If Google misses something, you may be able to find it here. It is always good to check both sites when doing your homework.


MSN Money Central

MSN Money scans the internet to find you all the stories related to the stocks you follow. Create a list of stocks to add to your watch list and follow real-time news articles about them. You can also view fundamental data such as balance sheets and income statements, but it is more limited than in Google Finance or Yahoo Finance.



This is literally the “holy grail” of investing. Investopedia has amounted a treasure of information about any financial term ever used. You’ll be able to understand anything financial experts say by simply looking it up here. It is very simple to understand and easy to use. In addition to that, you can also create your own mock portfolio and see how you do in the market without using real money.


For the technical chart readers out there. Don’t worry. I have not forgotten you. Check these sites out for your chart analysis needs.


Offers a clean and flexible way of looking at stock charts. These stocks charts are community driven to provide analysis in the form of optional annotations on each chart. Community aside, TradingView also supports extensively detailed charts, not to mention better pricing than for those who want access to advanced featured and/or real-time data.

Perhaps the simplest charting website to use. Stock charts brings chart analysis to the masses in a fun simple way.

Possibly the best stock screening page online. Finbiz brings a comprehensive set of tools to screen stocks according to the desired parameters. It makes it simple to find out which stocks are above or below trend lines, moving averages, which stocks are breaking out or breaking down, which are over sold or over bought, etc.


Disclaimer: None of the sources presented in this post have paid me nor Sylvia’s Traders Lounge for posting their information. The list above consists of personal opinion only. This is not a solicitation to buy nor sell any product. Do your own due diligence before purchasing any offered products on any of these sites.