Are you concerned about avoiding the next true bear market? Want to preserve your capital before the market turns down again? While it's impossible to tell exactly when the next big bear market will start, there are a few fundamental indicators that can help. One of those indicators is the U.S. unemployment rate.
The Relationship Between the Stock Market and the Unemployment Rate
The stock market and the unemployment rate have an inverse relationship. Historical data shows that as the stock market bottoms, the unemployment rate hits its highest point. Conversely, as the stock market tops, the unemployment rate is hitting its lowest point. This relationship shows that anytime the unemployment rate falls below 5% there is a risk of a bear market occurring.
Figure 1 illustrates this relationship perfectly. Around November 1970, September 1973, April 1982, September 2001, and July 2008 the unemployment rate had reached 5% or less.…