Stocks could rise after job losses

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Today’s dismal jobs report may hold a silver lining for patient stock investors.

In 12 of the years since World War II, the American economy has registered a net loss of jobs, according to Standard & Poor’s. In 11 of the 12 instances, the benchmark S&P 500 index ended the following year in positive territory.

The sole exception was 2002, when the S&P 500, caught in the midst of the dot-com bust, fell 22% after the economy had lost 1.7 million jobs the year before.

The reason that longer unemployment lines tend to lead to stock gains can be found in the nation’s capital. A year of job losses inevitably spurs economic stimulus efforts in Washington in the form of tax cuts, job creation programs, rebates and other tactics, said Richard J. Peterson, director of markets, credit and risk strategies at S&P.

“We’re seeing that now with the infusion of TARP money, etc.,” Peterson said, referring to the $700-billion financial system bailout approved by Congress and the billions more committed to helping homeowners in danger of defaulting on their mortgages.

And we’re likely to see much more. President-elect Barack Obama wants Congress to enact a recovery bill that would create 2.5 million jobs over the next two years. Among other things, the plan would dole out money for public-works jobs.

House Speaker Nancy Pelosi (D-San Francisco) has pledged to have a bill ready by Inauguration Day, which is Jan. 20.

If 2009 goes with the trend, it would be a welcome relief to investors who have watched their savings wither as the S&P 500 has fallen 40% so far this year. In fact, the index jumped almost 4% today, in part on expectations that further stimulus is on the way.

Certainly, the U.S. economy, which has been in recession for a year, has a deep hole to dig out of, as demonstrated by today’s report that November’s job losses were the biggest for a single month since 1974. Employment is a lagging indicator, but economists at Standard & Poor’s still don’t expect positive economic growth until the third quarter of 2009 at the earliest, and problems in the nation’s credit and housing markets so far have resisted efforts at amelioration.

-- Martin Zimmerman

Chart data: Standard & Poor’s