During the first presidential debate on Tuesday night, President Donald Trump and former Vice President Joe Biden touted their qualifications for navigating the economy through the pandemic. Biden emphasized the significant job creation during the Obama administration, while Trump highlighted the business-friendly tax cuts and the stock-market gains during his presidency.
Throughout his presidency, Trump has pointed to the stock market as proof that he's been good for the economy. And though the labor market is still reeling, he says booming stocks mean that jobs are coming back. "When the stock market goes up, that means jobs," the president said during the debate.
The truth is a bit more complicated, especially in 2020.
Historically, the unemployment rate has moved nearly in lockstep with the stock market. Look at this chart, which represents a timeline from September 2006 through February 2020 that shows where the S&P 500 (bottom axis) and unemployment rate (left axis) sat each month.
If you follow the chart, you'll see that the unemployment rate went up as the S&P 500 fell during the Great Recession. As the recovery began in late 2009, the S&P 500 climbed, and the unemployment rate decreased with it. There are a few blips, but generally the two variables follow a pattern.
This year, though, things have gone haywire. The S&P 500 hit a new record high in August but the unemployment rate was still 8.4%. While this marked the fourth straight month of decline from its peak in April, it's still higher than any month from 2012 through March of this year.
Let's look at that same chart again but this time through August.
The unemployment rate shot up to unprecedented levels beginning in April, but the stock market also began its recovery, which was propped up by government intervention. The Federal Reserve dropped interest rates to 0% in mid-March and began a program called quantitative easing, in which it buys government bonds and other financial assets in order to make it easier for financial institutions to lend money.
Since peak unemployment in April, the chart follows a pattern similar to that of the last recovery, going from the upper-left (higher unemployment, lower S&P 500) to the lower-right (lower unemployment, higher S&P 500). But it's unprecedented for both of these numbers to be so extreme.
The stock market is not always representative of how the general economy is doing. "One is looking at today, the other is saying where am I going," Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told CNBC. That was especially true this year when stay-at-home orders shut down large sections of the economy.
Traders tend to be forward-looking, so they accounted for the toll of the pandemic at its onset before unemployment rates shot up. Government aid provided though the CARES Act, which passed in March, eased investor concerns and contributed to the market's recovery in April.
Optimism continued throughout the summer as businesses reopened and unemployment rates gradually fell. "The market is saying, 'We know where we are today, but where are we going tomorrow?'" Silverblatt said. "In this case, tomorrow is 2021."
The stock market continuing to rise while unemployment remains high has some economists worrying America could be experiencing a "K-shaped recovery," where financial markets and more affluent people do well but the economy and many workers continue to struggle.
Generally, the data shows that a booming stock market has meant good things for the job market. But the coronavirus pandemic has also demonstrated that you can't rely on past trends to predict what's going to happen next.
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